IPOs postponed as PRC tightens reins

NEW REGULATION::Any company that sets a list price-to-earnings ratio higher than its industrial peers’ in the secondary market must publish repeat risk warnings


Tue, Jan 14, 2014 - Page 15

Five Chinese firms announced yesterday that they had postponed their initial public offerings (IPOs) after China’s stock regulator said overnight it would strengthen its supervision of new listings.

The announcements follow a similar statement by drugmaker Aosaikang (奧賽康) on Friday which sources told reporters was due to regulatory pressure, although the China Securities Regulatory Commission (CSRC) denied it.

The five companies are NetPosa Technologies Ltd (東方網力), Hebei Huijin Electromechanical Co Ltd (河北匯金機電), Nsfocus Information Technology Co Ltd (綠盟科技), Beijing Forever Technology Co Ltd (恆華科技) and Ciming Health Checkup Management Group Co Ltd (慈銘體檢).

“In line with the CSRC statement on Jan. 12, the issuer and lead underwriters have decided to adjust the timetable for the company’s planned share issuance,” Ciming Health said in its announcement, without giving a new time frame for the issue.

The other four firms issued similar statements.

The CSRC said on Sunday that any companies which set their IPO price-to-earnings (PE) ratios higher than the ratios of industrial peers in the secondary market must publish repeated risk warnings before they open subscriptions to retail investors, a move that will effectively reduce IPO prices and slow the progress of new issues.

Aosaikang appeared to be a retroactive violator of this rule by putting its price-to-earnings ratio at 67, versus 55 for its industry peers.

Analysts said regulators were also likely bothered by the company’s plans to dedicate most of the IPO to letting major stakeholders sell off their existing shares, instead of issuing new ones.

The six suspensions comprise around one-fifth of all the companies that have filed to list in Shanghai and Shenzhen since the IPO gates were lowered early this month.

This marks an inauspicious beginning to the resumption of IPOs in China, which regulators hoped would help nearly 750 companies, stuck in the queue since listings were frozen in late 2012 find sources of fresh funds outside the already overburdened banking system.

Ernst & Young has estimated these firms will raise around 200 billion yuan (US$33.05 billion) on the Chinese bourses this year.

Initial signs were promising, with the first two IPOs attracting massive investor interest during the subscription process.

In wider terms, the suspensions mark a setback for reformers in Beijing who have committed to giving markets a “decisive” role in the next phase of Chinese economic development.

The aborted listings highlight the challenges the government faces in liberalizing a market still dominated by companies unused to the requirements of transparent corporate governance.

The CSRC has said it will loosen its grip on the IPO process, changing its current approval-based system — where it decides who gets to list and who does not — to a registration-based system similar to the one used in the US.

This would diminish opportunities for corruption, but it also would limit regulators’ ability to protect China’s army of retail stock investors from unethical company managers.

China shares underperformed most of Asia yesterday, taking no cheer from the postponement of those new listings.

The CSI300 of the largest Shanghai and Shenzhen A-share listings ended down 0.5 percent at 2,193.7 points, its lowest closing level since the end of July last year.

The Shanghai Composite Index slipped 0.2 percent in lackluster volume.

The ChiNext Composite Index of mainly startups in technology and other nascent industries listed in Shenzhen outperformed, rising 0.7 percent.