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China plans new IPO pricing rules

"The IPO suspension will substantially ease worries about market liquidity in the near future."

Zheng Weigang, a Shanghai Securities analyst

China's top securities watchdog said yesterday it has suspended all initial public offerings (IPO) and will release a new set of more market-oriented pricing rules, pushing the local stockmarkets sharply higher.

"The commission will not arrange any IPOs before the promulgation of new IPO pricing rules," the China Securities Regulatory Commission said on its website.

It did not say when the new pricing rules would be unveiled but share issues already approved would not be affected.

China shares opened higher in response to the commission's decision, with the key Shanghai Composite Index climbing 22.90 points or 1.74 percent to 1,342.30 at the bell. The index closed up 22.66 points or 1.72 percent at 1,342.06.

"The IPO suspension will substantially ease worries about market liquidity in the near future," said Zheng Weigang, a Shanghai Securities analyst.

"It also signals that the regulators are concerned about the recent lackluster market performance and are trying to provide some help," Zheng said.

China's stock markets have dropped over 25 percent since mid-April on concerns that the central government's program of tighter macro-economic controls would hurt the profitability of listed firms.

The country's yuan-denominated markets also have a serious liquidity problem as investors are refusing to put up fresh funds on concerns that the government will dump currently non-tradeable state-enterprise shares on the bourse.

In a statement, the commission said prices of IPO shares would mainly be set through a bookbuilding process -- whereby institutional investors make bids for the stock on offer instead of the company and regulators setting the price.

The announcement follows amendments to the securities' and companies' laws passed by the National People's Congress, China's parliament, over the weekend.

It effectively forces China's securities regulators to give up control of the offer pricing of state firms seeking listings and hands it over to market mechanisms.

Up to now, the securities regulatory commission has kept a tight grip on IPO pricing, with most new issues priced around 20 times earnings.
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