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Monday 1 June 2009
IPO Reforms No Guarantee of Market-Oriented Share Issues
The IPO reforms feature auction-based share issues intended to give small investors a better chance and reducing the disparity between share offer prices and the prices achieved on the first day of trading.
IPO Reforms No Guarantee of Market-Oriented Share Issues
The IPO reforms feature auction-based share issues intended to give small investors a better chance and reducing the disparity between share offer prices and the prices achieved on the first day of trading.
Qiao Xiaohui, Wang Xiaolu and Wang Duan 31 May 2009
(Caijing.com.cn) The reforms to the initial public offering rules are unlikely to make the process of issuing new shares truly market-oriented, as the regulator will still control the timing of listings, banking and securities industry sources told Caijing.
“The issuer cannot control the timing to pursue the ideal market environment. This may offset the effect of the reforms on share pricing,” an executive at a major domestic securities firm who asked not to be identified told Caijing.
“Furthermore, regulators are likely to be blamed if the resumption of IPOs does trigger a plunge in the stock markets,” the executive said, suggesting that they will err on the side of caution when it comes to approving listings.
The China Securities Regulatory Commission said on May 22 that the draft rules for reforming the IPO system are open to public comment until June 5. It plans to lift the suspension of IPO approvals, in force since September, once the comments are considered and the rules are finalized.
The IPO reforms feature auction-based share issues intended to give small investors a better chance at acquiring shares and reducing the disparity between share offer prices and the prices achieved on the first day of trading.
China’s shares currently have no trading limit on debut, and prices usually soar during first-day trading, raising the question of whether offer prices are systematically set low. The almost-guaranteed profits to be made from flipping IPO shares also make the process of obtaining them subject to favouritism and corruption.
The new rules still specify that the CSRC grant final approval before going public even if company has already passed CSRC panel review.
Caijing has learned that some brokers had suggested a time limit for IPO candidates to get final approval after passing the panel review, but the proposal was not adopted by the regulator.
“To explain the delay in final approvals, regulators always said they were concerned about weak IPO prices as well as liquidity pressure on the overall market, but that is absolutely not what they should consider,” an investment banker who asked not be identified said.
“Actually, the regulator does not want to give up part of its power. That runs counter to the country’s aim towards a service-oriented government,” the banker said.
Data from Wind Information, which tracks China’s capital markets, show that 33 companies have already passed CSRC panel review and are awaiting final approval to go public. Another 300 companies are in the queue for the panel review.
The investment banker noted that qualified companies will move to raise funds in Hong Kong if mainland IPOs stay frozen.
So far this year, 10 Chinese companies have gone public in Hong Kong, raising a combined HK$ 12.4 billion. Real Gold Mining Ltd. (HK 0246), Silver Base Group (HK 0886) and China Zhongwang Holdings Ltd. (HK 1333) raised over US$ 100 million each from their Hong Kong listings.
Zhongwang, Asia’s largest maker of extruded aluminium products by capacity, raised HK$ 9.8 billion in early April, making it the world’s biggest IPO since August 2008.
“The Hong Kong market shows signs of recovery, although trading is still not active enough,” Zhou Weiming, China financing manager with Merrill Lynch (Asia Pacific) Ltd., told Caijing.
Zhongwang closed down 5.3 percent on its May 8 debut, and the shares have mostly stayed below the HK$ 7 IPO price since then. It closed at HK$ 6.97 on May 27.
Bawang International Co., a Chinese maker of personal care products, has passed a hearing and is expected to list in Hong Kong in June, raising up to US$ 300 million.
China Metal Recycling Holdings Ltd., the mainland’s biggest scrap metal recycler, also intends to list on the Hong Kong bourse in mid-June, while Beijing-based construction material firm BBMG Corp. is marketing a Hong Kong offering to raise US$500-700 million.
A CSRC official told Caijing that the regulator will likely to allow some companies applying for A-share listing to raise funds in Hong Kong, but not those that have passed the CSRC panel review.
The official Xinhua news agency reported that the companies passing review plan to issue a combined 14.4 billion shares. China State Construction Engineering Corp. Ltd. will have the largest offering of 12 billion shares.
Everbright Securities Co., Sichuan Expressway Co. (HK 0107) and China Merchants Securities Co. also plan to issue more than 100 million shares.
“The sustainability of the stimulus plan, rather than the resumption of IPOs, will be the major influence in the A-share market,” Credit Suisse China research director Chen Changhua said.
The benchmark Shanghai Composite Index has gained more than 40 percent since the beginning of the year, propped up by the government’s 4 trillion yuan stimulus package.
Gui Haoming, an analyst with Shenyin & Wanguo Securities, said factors that supported the rally are now fading, including technical conditions for a rebound and a surge in new loans.
“The stock indices are seeing fluctuation in recent days, and it may be hard for them to climb significantly in the rest of the year,” Gui said.
2 comments:
IPO Reforms No Guarantee of Market-Oriented Share Issues
The IPO reforms feature auction-based share issues intended to give small investors a better chance and reducing the disparity between share offer prices and the prices achieved on the first day of trading.
Qiao Xiaohui, Wang Xiaolu and Wang Duan
31 May 2009
(Caijing.com.cn) The reforms to the initial public offering rules are unlikely to make the process of issuing new shares truly market-oriented, as the regulator will still control the timing of listings, banking and securities industry sources told Caijing.
“The issuer cannot control the timing to pursue the ideal market environment. This may offset the effect of the reforms on share pricing,” an executive at a major domestic securities firm who asked not to be identified told Caijing.
“Furthermore, regulators are likely to be blamed if the resumption of IPOs does trigger a plunge in the stock markets,” the executive said, suggesting that they will err on the side of caution when it comes to approving listings.
The China Securities Regulatory Commission said on May 22 that the draft rules for reforming the IPO system are open to public comment until June 5. It plans to lift the suspension of IPO approvals, in force since September, once the comments are considered and the rules are finalized.
The IPO reforms feature auction-based share issues intended to give small investors a better chance at acquiring shares and reducing the disparity between share offer prices and the prices achieved on the first day of trading.
China’s shares currently have no trading limit on debut, and prices usually soar during first-day trading, raising the question of whether offer prices are systematically set low. The almost-guaranteed profits to be made from flipping IPO shares also make the process of obtaining them subject to favouritism and corruption.
The new rules still specify that the CSRC grant final approval before going public even if company has already passed CSRC panel review.
Caijing has learned that some brokers had suggested a time limit for IPO candidates to get final approval after passing the panel review, but the proposal was not adopted by the regulator.
“To explain the delay in final approvals, regulators always said they were concerned about weak IPO prices as well as liquidity pressure on the overall market, but that is absolutely not what they should consider,” an investment banker who asked not be identified said.
“Actually, the regulator does not want to give up part of its power. That runs counter to the country’s aim towards a service-oriented government,” the banker said.
Data from Wind Information, which tracks China’s capital markets, show that 33 companies have already passed CSRC panel review and are awaiting final approval to go public. Another 300 companies are in the queue for the panel review.
The investment banker noted that qualified companies will move to raise funds in Hong Kong if mainland IPOs stay frozen.
So far this year, 10 Chinese companies have gone public in Hong Kong, raising a combined HK$ 12.4 billion. Real Gold Mining Ltd. (HK 0246), Silver Base Group (HK 0886) and China Zhongwang Holdings Ltd. (HK 1333) raised over US$ 100 million each from their Hong Kong listings.
Zhongwang, Asia’s largest maker of extruded aluminium products by capacity, raised HK$ 9.8 billion in early April, making it the world’s biggest IPO since August 2008.
“The Hong Kong market shows signs of recovery, although trading is still not active enough,” Zhou Weiming, China financing manager with Merrill Lynch (Asia Pacific) Ltd., told Caijing.
Zhongwang closed down 5.3 percent on its May 8 debut, and the shares have mostly stayed below the HK$ 7 IPO price since then. It closed at HK$ 6.97 on May 27.
Bawang International Co., a Chinese maker of personal care products, has passed a hearing and is expected to list in Hong Kong in June, raising up to US$ 300 million.
China Metal Recycling Holdings Ltd., the mainland’s biggest scrap metal recycler, also intends to list on the Hong Kong bourse in mid-June, while Beijing-based construction material firm BBMG Corp. is marketing a Hong Kong offering to raise US$500-700 million.
A CSRC official told Caijing that the regulator will likely to allow some companies applying for A-share listing to raise funds in Hong Kong, but not those that have passed the CSRC panel review.
The official Xinhua news agency reported that the companies passing review plan to issue a combined 14.4 billion shares. China State Construction Engineering Corp. Ltd. will have the largest offering of 12 billion shares.
Everbright Securities Co., Sichuan Expressway Co. (HK 0107) and China Merchants Securities Co. also plan to issue more than 100 million shares.
“The sustainability of the stimulus plan, rather than the resumption of IPOs, will be the major influence in the A-share market,” Credit Suisse China research director Chen Changhua said.
The benchmark Shanghai Composite Index has gained more than 40 percent since the beginning of the year, propped up by the government’s 4 trillion yuan stimulus package.
Gui Haoming, an analyst with Shenyin & Wanguo Securities, said factors that supported the rally are now fading, including technical conditions for a rebound and a surge in new loans.
“The stock indices are seeing fluctuation in recent days, and it may be hard for them to climb significantly in the rest of the year,” Gui said.
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