No other sector epitomises the controlled nature of China’s state capitalism as much as the country’s primary equity market. The country’s powerful securities regulator, via its listing assessment committee, decides who among the hundreds of cash-thirsty listing applicants can tap the equity markets and also when (and sometimes how) they can do it.
Now this decades-old practice is being challenged by the new head of the China Securities Regulatory Commission (CSRC), Guo Shuqing, who has publicly questioned whether the regulator should simplify the tedious listing approval process.
And market participants are in favour of the idea that the CSRC shift away from its traditional role as a gatekeeper for new share listings and focus more on supervision.
“It should be a question of when, not if,” said one investment banker. “So far, the securities regulator has paid very little attention to the market and has only given the go-ahead to companies whose development is in line with Beijing’s economic blueprint. The approval process could take so long that the listing timing is out of issuers’ and bookrunners’ control and companies often miss market windows when they do become available,” he said.
As surprising as it may sound, it can take several years before a listing hopeful may actually come to market, if it comes at all. One example of the prolonged application process is Dongguan Bank. It filed a listing application in 2008 and hired Goldman Sachs Gaohua Securities to manage the initial public offering. Since then little has happened and the name of the small city lender in South China had been long forgotten until last week when the bank said it was still waiting in the queue and hoped to go public this year.
Moreover, when listing hopefuls clear the application process, they may still be told to wait and make way for flagship deals. In 2010, in a bid to pave the way for Agriculture Bank of China’s massive dual-listing in Hong Kong and Shanghai, Beijing told other Chinese banks that were desperate to replenish capital to put their deals on hold. As the number of investors that would want to put money into Chinese banks can be limited, it was viewed to be important to be first out of the gate.
“Guo’s remarks tell us he wants the A-share market to be more market-driven and more like its overseas counterparts,” said the investment banker.
Currently, all issuers need to seek a green light from the CSRC’s listing assessment committee, which consists of several members who, observers say, may not fully understand the equity market and the businesses of the applicant companies.
CSRC announced by the end of last year that all companies seeking a listing are required to file a preliminary prospectus one month before a scheduled assessment, which is up from five days previously. This will allow investors and committee members more time to understand and verify the information provided by listing applicants.
While generally viewed as a step in the right direction, Guo’s comments have also sparked worries that a relaxation of the approvals process might lead to speculative issuers flocking to the equity market – adding further to the long queue of listing applicants. Earlier this month, in an effort to improve market transparency, CSRC for the first time released the names of 515 companies that are seeking approval for a new share sale.
Guo, the former chairman of China Construction Bank, is well-known in China for his reform-minded style. He succeeded Shang Fulin to become the chairman of CSRC in November last year.