Chinese counsel criticise CSRC publication of IPO applicants

Author: | Published: 2 Feb 2012
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The decision by China’s securities regulator to publish, for the first time, a full list of Shanghai and Shenzhen initial public offering applicants has been branded as bad news for China’s secondary A-share market by lawyers.

The list, made available on the China Securities Regulatory Commission (CSRC) website yesterday, shows that 295 companies have applied to list on the Shanghai Stock Exchange or Shenzhen's small and medium enterprise board. An additional 220 firms are looking to float on Shenzhen's ChiNext board.

FenXun Partners’ Xusheng Yang said publication of the list, which will be updated weekly, had shocked secondary market investors. “Many hadn’t realised there were so many potential issuers waiting in the pipeline,” he said.

“With over 500 potential ListCos waiting in line, prices in the secondary market will be significantly driven down,” he said.

But Boss & Young’s partner Hubert Tse believed the new measures would enable fairer prices for IPOs.

“These offerings are priced at such high P/E ratios there is no room left for investors to profit once shares are listed or floated on the secondary market,” he said. “This sucks so much money out of the market it leaves the local bourses depressed and lacking in liquidity.”

The move was good news for the China’s capital markets, he said, as it would make the listing review, pricing and application process more transparent.

It forms part of the new CSRC chairman Guo Shuqing’s drive to build more credible stock market processes in China.

Yang said market participants’ lack of understanding about regulatory procedures for new listings had previously encouraged a lack of confidence in the CSRC and the IPO process in general.

“This should ensure investors become much more comfortable with the system and the regulator monitoring it,” said Yang. “It is huge progress in the right direction.”

The decision to advance publication of pre-disclosure documents from five days to one month prior to listing was the single most important change, he said.

“Giving the public longer to properly research potential ListCos is a much more practical approach,” he said. However, he expected investment banks and potential issuers to be nervous about the potential impact of this.

Under the current system, the CSRC will post a copy of the draft prospectus on its website along with a date for when the IPO plan would be reviewed. Once a company has received regulatory approval, it must launch the IPO within six months.

Until now, it was unclear when companies had submitted their applications. It remains unclear when many of the applicants in yesterday’s list will hit the market. The list has also not stipulated the companies' fundraising targets.

Tse said further clarification was also needed regarding implementation of the new rules, and to what extent companies in breach of the regulations would be penalised for non-compliance.