Across The Border

China’s securities regulator fast tracks new listing approvals in sign of market confidence

PUBLISHED : Friday, 02 December, 2016, 12:54pm
UPDATED : Friday, 02 December, 2016, 10:43pm

China’s securities regulator has fast-tracked initial public offering (IPO) approvals ahead of the year end in a fresh sign that Beijing may revisit a policy aimed at improving the new share sale mechanism.

More than 50 companies received the green light from the China Securities Regulatory Commission (CSRC) to float IPO shares in November, slightly reducing the backlog of about 800 listing applicants on the mainland market.

The quickened IPO pace was an about-face by the CSRC which previously took a cautious approach on new equity supply amid worries of a further market slide.

“There are signs that the regulator is having confidence in the market,” said Liu Qiaoyu, analyst with Huatai Securities. “Those listing prospects may have hope that they can raise funds on the market soon.”

The total number of IPOs this year is likely to hit 250 if the regulator maintains its current pace of approvals in December.

In the first 11 months of this year about 200 applicants were granted IPO approvals. In the first half, only 70 companies were allowed to conduct IPOs on the Shanghai and Shenzhen stock exchanges.

Beijing temporarily halted new listings in mid-2015 after a boom-to-bust scenario unfolded, in a last-ditch effort to stem a sharp fall.

The securities regulator lifted the ban in November last year, but it took a go-slow approach at that time because achieving market stability was the priority.

A suspension on IPOs or a slower approval process was seen as helping restore investor confidence by preventing an influx of fresh equity from diluting existing holdings.

Typically on the mainland, an IPO bonanza siphons multi-billion yuan of funds off the market as investors flock to the new shares amid the belief that they would see huge returns on the first day of trading.

Earlier this year, the CSRC put on hold a plan to launch a registration-based IPO system to facilitate company fundraising. The new system would require companies to fully disclose information about their earnings and operations after they submitted a listing application.

The regulator would relinquish its responsibility for assessing applicants’ earnings potential while letting the market decide their worth as long as the accuracy of statements made in filed documents could be confirmed.

However, the decision to shelve the IPO reform was seen as a double-edged sword.

On one hand, it sent a clear message to investors that the regulator was making an all-out effort to underpin the beleaguered market. On the other hand, it was a stumbling block for hundreds of mainland firms that sought to raise funds on the stock exchanges to replenish their expansion plans.

Beijing intended to bolster technology firms by granting them easier access to the stock market.

It was believed that the regulator would put IPO reform back on its agenda when a market recovery was on a solid footing.

In November a gain of about 5 per cent in the benchmark Shanghai Composite Index created an opportunity for the CSRC to test the waters.

“Obviously, the regulator is still keeping in mind the reform because it’s a significant part of the leadership’s efforts to drive a further economic growth,” said Zhang Qi, an analyst at Haitong Securities. “If a flood of IPOs are well received by the market, the regulator would probably consider launching the reform in the near future.”

At present, there’s a huge backlog with more than 700 companies waiting on listing approval.

Some of these applicants will have to wait at least three years to raise funds if the registration-based system doesn’t get the go ahead.

Chinese Premier Li Keqiang intended to give promising tech start-ups a fast ticket to the stock market as he engineered a transition to a new economic growth pattern driven by consumption and entrepreneurship.

Mainland authorities intensified a clampdown on the overheated property sector recently, which triggered an injection of new liquidity into the stock market as home market speculators piled into A shares in pursuit of short-term gains.

But analysts said the outlook for the long-heralded IPO reform was still cloudy.

The regulator would still want to spend several months assessing market conditions before making a decision to go back to the reform, they said.

The Shanghai stock exchange index is now nearly 40 per cent shy of the close on June 12 when the stock market rout started.