China reopens A-share IPO market

About 50 companies are expected to be listed by the end of January, and it will take a year to review all 760 prospective issuers waiting in line, according to the CSRC, China’s securities watchdog.

The China Securities Regulatory Commission has lifted a 13-month ban on A-share initial public offerings and released revised rules to establish a more market-driven approach.  

In a month, some issuers will be able to start their offering processes, with about 50 companies expected to be listed by the end of January, according to the regulator.

Eighty three companies have already passed the regulatory review and can launch their IPOs once they update their listing prospectus according to CSRC’s new rules. The total fundraising size amounts to Rmb60 billion (US$9.76 billion). The regulator said it will take a year to review the 760 prospective issuers waiting in line.

“We have begun studying the new policies already and will try to get everything prepared as soon as possible,” said a banker with a large securities house. “There is no reference to us that we bring out which type of issuers, big or small, to the market first.”

Among the 83 companies, Shaanxi Coal Industry plans to raise at least Rmb17.3 billion, while China Postal Express & Logistics aims for Rmb10 billion.

China has not seen a single A-share IPO since October 2012 when the CSRC introduced reforms to clear up the market. More than 260 companies have withdrawn their IPO applications since then.

The new rules, released over the weekend, are effectively an update of a consultancy paper published on June 7.

Under the rules, issuers will be required to submit information to the CSRC, whose sole responsibility will be to make sure the submissions meet disclosure requirements rather than making judgments on the companies’ financials and valuation.

Within three months of receiving an application, the regulator will need to make its decision to accept, suspend, terminate or refuse the listing.

According to one senior Beijing-based ECM banker, the process of waiting will be much shorter, compared to previous time periods of years.

“The shift from administration approval to registration system echoes the reform theme set by the central government in the third plenum, which is [to] let the market forces exert the decisive role,” said a spokesman with the CSRC.

The guidelines also extend the valuation period of approved listings from 6 months to 12 months, and give issuers and IPO bookrunners flexibility in deciding the offering timetable.

Rules to curb high valuation and pricing in new shares have also been set by the CSRC.

The new rules encourage existing shareholders to sell stakes held by them for at least three years to other investors during the IPO, in an effort to increase the public float and guarantee share liquidity. The logic is that investors will be more rational with greater supply.

Secondly, the rules require that the top 10% orders in the book will not be counted and the bidders of those orders will not be allowed to participate in the offering. In this case, institutional investors will become more cautious when they place price for the shares.

Thirdly, if the new shares do not perform well and their price fall below the IPO price, the major shareholders have to extend their lock-up periods, according to the new rules.

To ease the pressure of new shares on the secondary market, only those retail investors who already hold some old shares are qualified to buy shares from the IPO. However, how many old shares the retail investors need to hold and how many new shares they need to subscribe to are not clarified by the regulator.

In a separate announcement on Saturday, the CSRC said it would start a trial permitting the issue of preferred shares, which offers listed companies a channel to raise more equity without immediately diluting existing investors.

The long-awaited policy is widely expected by analysts to improve the financing structure of China’s equity capital markets and boost investor confidence in it.

More detailed measures and related rules are in preparation and will be launched very soon, according to the CSRC.

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