China’s securities regulator announced new curbs on how much and often the nation’s public companies can issue new shares, amid concerns that a faster pace of initial public offerings (IPOs) would drag on the stock market.
The number of shares issued in private placements cannot be more than 20 percent of a company’s total shares, the Chinese Securities Regulatory Commission (CSRC) said in its weekly press briefing in Beijing yesterday.
Non-financial companies seeking a share sale should not have a large balance of longer-term financial investments such as assets for trading or funds lent to others, the CSRC said, though it did not provide more details.
The CSRC’s move to more closely supervise refinancings, which in the past year raised six times as much money as new listings, comes as it speeds up approval of IPOS.
The regulator last month said it would take steps to control public companies from frequently refinancing or raising too much at one time.
Shanghai-based KGI Securities Co (凱基證券) analyst Ken Chen (陳浩) said before the announcement that the move would help free up liquidity for IPOs.
“The cooling in economic growth and rising interest rates are making IPOs a very attractive financing channel for companies,” Chen said. “The market would be under too much liquidity pressure if secondary share sales go [on] at the current speed and scale.”
The CSRC also said that all board decisions on additional share issues needed to be “in principle” no earlier than 18 months after capital raised from the last sale was in place.
Sales of convertible debt, preferred shares and so-called small and quick financings on the ChiNext market would not be affected.
The changes are to affect market practice where companies prefer small public offerings for faster regulatory approval and then move to private placements once listed, Beijing-based Linklaters LLP partner Eric Liu (劉堅中) said.