Mainland regulators are curbing public offerings in sectors plagued by overcapacity
Daniel Ren in Shanghai and Sandy Li 05 February 2010
Beijing will not suspend initial public offerings, as many companies and investors had feared, but mainland regulators are curbing some listings from property developers and manufacturers in sectors plagued by overcapacity.
A China Securities Regulatory Commission spokesman told the South China Morning Post yesterday that the regulator will not halt all listings. The statement put to rest rampant speculation that the CSRC would stop new share flotations, as it has previously, to bolster the weak market. “The IPO approval procedure will continue under the principle of transparency,” she said.
Separately, two investment bankers said the CSRC has temporarily stopped reviewing listing and refinancing applications by developers and some industrial firms. The move is in line with Beijing’s commitments to curb the housing market and reduce overcapacity in some sectors.
The decision not to stop listings comes as irate investors and analysts have blamed the regulator for its failure to ensure fairness in the primary market. Thousands of investors were stuck with paper losses after two flotation stocks crashed below their offering prices on their first trading day.
Newly listed stocks on the mainland rarely suffer such a decline. Flotation shares had been considered safe bets, generally delivering handsome first-day returns. That is because previously, new share prices were set artificially low as the government made it easy for state-owned firms to raise funds.
But listing prices have been set at far higher initial prices since June last year when Beijing lifted a nine-month ban and gave underwriters and companies more freedom in pricing.
When the CSRC reopened the listing market in June, it hoped market forces would play a vital role in the pricing or so-called book-building process, forcing the pricing mechanism to be more on par with international practices.
However, only institutional investors that bid for a small tranche of flotation shares through subscriptions were participating in the price consultations. The remaining shares, normally 80 per cent of the total volume, were offered to the general public based on the price set by the institutions. Retail investors still flocked to listings in the belief that a successful bid for a portion of the shares could bring them strong returns. But this time they were badly burned.
Zhu Congjiu, an assistant chairman of the CSRC, fired a first salvo in the debate on the listing system last week, criticising the institutions for irrationally pushing up the prices in offline subscriptions. This comment helped spur speculation that the CSRC would again halt listings.
“The pricing system proved unsuccessful again, and it again hurt the interests of the retail investors,” Haitong Securities analyst Zhang Qi said. “[But] in line with growing appetite for funds, it would be a hard decision for the regulator to suspend IPOs.” And many argued that the regulator should not.
“If the regulator finds something wrong in the IPO mechanism, it should go ahead and fix it,” Wind Information analyst Chen Wei said. “It will be wrong if it suspends IPOs again. It will also be detrimental if retail investors are reluctant to subscribe to the new shares.
“It is not a bad thing to see a stock fall below IPO price on its trading debut. It could sound a wake-up call to the regulator that it cannot sit back in a market known as government-orchestrated for long.”
Analysts said this time the regulator will resort to administrative forces to intervene in the flotation pricing, ordering underwriters and institutions to set prices lower, rather than conducting a head-to-toe reform of the existing system.
But the regulator is expected to clamp down on developers to help cool the property market. “By closing the tap for fund-raising, developers have no choice but to speed up sales of new projects in a bid to raise cash flow,” said Raymond Ngai, an analyst at JP Morgan Securities. “With an increase of new flat supply, it will help stabilise property prices.”
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Beijing will not halt new listings
Mainland regulators are curbing public offerings in sectors plagued by overcapacity
Daniel Ren in Shanghai and Sandy Li
05 February 2010
Beijing will not suspend initial public offerings, as many companies and investors had feared, but mainland regulators are curbing some listings from property developers and manufacturers in sectors plagued by overcapacity.
A China Securities Regulatory Commission spokesman told the South China Morning Post yesterday that the regulator will not halt all listings. The statement put to rest rampant speculation that the CSRC would stop new share flotations, as it has previously, to bolster the weak market. “The IPO approval procedure will continue under the principle of transparency,” she said.
Separately, two investment bankers said the CSRC has temporarily stopped reviewing listing and refinancing applications by developers and some industrial firms. The move is in line with Beijing’s commitments to curb the housing market and reduce overcapacity in some sectors.
The decision not to stop listings comes as irate investors and analysts have blamed the regulator for its failure to ensure fairness in the primary market. Thousands of investors were stuck with paper losses after two flotation stocks crashed below their offering prices on their first trading day.
Newly listed stocks on the mainland rarely suffer such a decline. Flotation shares had been considered safe bets, generally delivering handsome first-day returns. That is because previously, new share prices were set artificially low as the government made it easy for state-owned firms to raise funds.
But listing prices have been set at far higher initial prices since June last year when Beijing lifted a nine-month ban and gave underwriters and companies more freedom in pricing.
When the CSRC reopened the listing market in June, it hoped market forces would play a vital role in the pricing or so-called book-building process, forcing the pricing mechanism to be more on par with international practices.
However, only institutional investors that bid for a small tranche of flotation shares through subscriptions were participating in the price consultations. The remaining shares, normally 80 per cent of the total volume, were offered to the general public based on the price set by the institutions. Retail investors still flocked to listings in the belief that a successful bid for a portion of the shares could bring them strong returns. But this time they were badly burned.
Zhu Congjiu, an assistant chairman of the CSRC, fired a first salvo in the debate on the listing system last week, criticising the institutions for irrationally pushing up the prices in offline subscriptions. This comment helped spur speculation that the CSRC would again halt listings.
“The pricing system proved unsuccessful again, and it again hurt the interests of the retail investors,” Haitong Securities analyst Zhang Qi said. “[But] in line with growing appetite for funds, it would be a hard decision for the regulator to suspend IPOs.” And many argued that the regulator should not.
“If the regulator finds something wrong in the IPO mechanism, it should go ahead and fix it,” Wind Information analyst Chen Wei said. “It will be wrong if it suspends IPOs again. It will also be detrimental if retail investors are reluctant to subscribe to the new shares.
“It is not a bad thing to see a stock fall below IPO price on its trading debut. It could sound a wake-up call to the regulator that it cannot sit back in a market known as government-orchestrated for long.”
Analysts said this time the regulator will resort to administrative forces to intervene in the flotation pricing, ordering underwriters and institutions to set prices lower, rather than conducting a head-to-toe reform of the existing system.
But the regulator is expected to clamp down on developers to help cool the property market. “By closing the tap for fund-raising, developers have no choice but to speed up sales of new projects in a bid to raise cash flow,” said Raymond Ngai, an analyst at JP Morgan Securities. “With an increase of new flat supply, it will help stabilise property prices.”
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