The Shenzhen Stock Exchange will require the 28 firms scheduled to list on the new second board to disclose how they will use the extra proceeds from their initial public offerings. The decision came after the companies raised more funds than targeted.
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Shenzhen will keep watch on extra IPO funds
Daniel Ren in Shanghai
17 October 2009
The Shenzhen Stock Exchange will require the 28 firms scheduled to list on the new second board to disclose how they will use the extra proceeds from their initial public offerings. The decision came after the companies raised more funds than targeted.
According to a new rule published by the exchange yesterday, the firms must complete the new plans within six months and are barred from using the extra funds to buy equities and financial derivatives. It is the first time regulators have drawn up a specific rule governing the use of extra listing proceeds.
The first 28 start-up firms that will be listed on the Growth Enterprise Board raised a combined 15.5 billion yuan (HK$17.6 billion) from the offerings, more than double the targeted size in their prospectuses.
The bonanza triggered regulatory concerns that the firms would misuse the excess funds to chase short-term returns on equities and high-risk derivatives.
“The Shenzhen exchange will keep a close watch on the use of the excess funds,” Zhou Ming, a vice-president of the exchange, said yesterday. “We will severely punish improper behaviour.”
The mainland stock market has long been plagued by illegal fund inflows since it was established in 1990.
Almost 1.2 trillion yuan of banking loans was illegally invested in stocks in the first half of this year, according to Wei Jianing, a researcher at the State Council’s Development Research Centre.
“It is a serious problem related to the second board,” said Bohai Securities analyst Zhou Xi. “The regulator must nip the problem in the bud. Otherwise, the damage to the market can be huge.”
Mainland investors showed strong interest in the new listings and underwriters set high offer prices for the 28 companies.
The technology-heavy market is expected to be launched as early as late this month.
Millions of retail investors are set to pile billions of yuan into the small-cap stocks hoping to strike it rich overnight.
Xinhua said yesterday the high price-earnings multiples for the stocks exposed investors to higher risks.
Analysts said it was inevitable that the growth market would see a roller-coaster ride when trading began.
“The stocks are likely to soar at first, followed by a sharp decline,” said Haitong Securities analyst Zhang Qi. “The market is highly risky and some investors will eventually pay the price.”
At the end of last month, the Shenzhen exchange introduced a new trading rule aimed at curbing rampant speculative trading on the growth market, a fresh sign that the regulators were worried about wild price swings.
Under the rule, a stock will be suspended from trading until 2.57pm, three minutes before closing, if the stock jumps or falls 80 per cent from the opening price on the first day of trading.
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