China’s securities regulator has issued a reform plan for initial public offerings (IPOs), as the government prepares to lift a more than one-year freeze on new listings in the world’s second-biggest economy.
About 50 companies are expected to complete the IPO approval preparations and list or be ready to do so by the end of next month, the China Securities Regulatory Commission (CSRC) said in a statement on its Web site on Saturday.
There are more than 760 companies in the line for approval and it will take approximately a year to complete an audit of all the applications, the regulator said.
China, the world’s largest IPO market in 2010, with a record US$71 billion raised, has not had an IPO since October last year as the CSRC cracked down on fraud and misconduct among advisers and companies.
Chinese Communist Party leaders pledged last month to change the IPO system as part of a package of reforms that signaled the biggest expansion of economic freedoms since at least the 1990s.
“This is positive for the long-term development of the market as both companies and stock investors will gradually have more choice under the new policy,” said He Zongyan, an analyst at Shenyin & Wanguo Securities Co in Shanghai.
“It may add downward pressure on the stock market in the short term as 50 new IPOs in the next few months may drain capital and force a correction in some inflated stocks,” He said.
The regulator stopped reviewing applications for listing on the country’s stock exchanges in Shanghai and Shenzhen amid concerns that a flood of new shares could damage investor confidence.
Xiao Gang (肖鋼), a former central banker and Bank of China Ltd (中國銀行) chairman who was named head of the CSRC in March, said on Nov. 19 the shift to a looser IPO system must be gradual to avoid shocks to the market.
China’s benchmark Shanghai Composite Index has dropped 2.1 percent this year and the CSI300 Index has fallen 3.3 percent, the worst performers among 20 primary equity indexes in the Asia-Pacific region tracked by Bloomberg.
In a separate statement, the CSRC said it will draft rules for a trial to allow companies to sell preferred stock, based on guidance issued on Saturday by the State Council, and seek public feedback on its proposals.
The use of preference shares will help deepen corporate reform, provide a flexible financing tool for companies and promote the stable development of the capital market, the State Council, China’s Cabinet led by Premier Li Keqiang (李克強), said in guidelines issued on the central government Web site.
Under the current rules for domestic IPOs, companies go through a review and approval system, where a CSRC committee has the sole discretion to decide whether a company is fit for listing.
The process can involve several rounds of reviews and take years, Xinhua news agency said in a report on Saturday.
In the new system, the regulator will only be responsible for examining whether applicants are qualified, leaving investors and the markets to make their own judgment about a company’s value and the risks of buying its shares.