Chinese companies queuing up to list on domestic stock exchanges are becoming increasingly worried that falling share prices will prompt authorities to delay their initial public offerings.
The mainland IPO market was widely expected to reopen in July, according to sources familiar with the situation.
IPO underwriters also say that they were told by the China Securities Regulatory Commission (CSRC) a week ago to get their paperwork in order — a clear sign that the watchdog would allow IPOs again, they believed, after stopping them last November.
However, tumbling stock indices may push back the timetable.
“The authorities were determined, but they are now hesitating because a flood of new issuance will add extra pressure to the secondary market,” says one source, who is in constant contact with regulators and asked not to be identified.
At a regular press conference held by the CSRC last Friday, a spokesman said that there is no set timetable for IPOs, which market players took as evidence that the authorities are hesitant to push ahead.
The Shanghai SE Composite Index lost 2.8% on June 13, dragged down by concerns about an end to quantitative easing in the US and partly because of worries about the new IPOs. Since then the benchmark index has fallen another 8.8% due to concerns that the continuing credit crunch in China will slowdown economic growth.
The CSRC is in a dilemma, because the issuers and IPO underwriters are lobbying them to approve their IPOs before the financial accounts that they have submitted become outdated at the end of July.
They also don’t want to force companies eager for capital to wait several months to update their accounts.
“[The authorities] are having a hard time deciding,” says another source.
The debate over when to unleash the IPOs is frustrating for investors, keen to see new market reforms in action.
A draft of new rules that the CSRC announced on June 7 gives issuers more flexibility on the timing of their IPOs and more freedom to underwriters and issuers over pricing. Bankers will also consult a bigger group of retail investors on pricing, and have a free hand in allocating a bigger percentage of new shares to institutional investors.
To protect investors, the CSRC also strengthened regulations on issuers and underwriters. The rules emphasise the responsibility of sponsors in information release, due diligence and financial and auditing reporting.
The new rules place restrictions on controlling shareholders and senior managers selling shares after the IPO.
“It’s a great time to invest in IPOs,” says Wu Xianfeng, chairman of Shenzhen-based Lonteng Asset Management. “The new rules will help more qualified issuers come to market with attractive valuations.”
There are 83 companies that have passed the regulatory review and can launch their IPOs once CSRC approval is granted. The total fundraising size amounts to Rmb60 billion ($9.76 billion), according to the CSRC website.