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CSRC unveils IPO pricing regs
By Jiang Yan (Business Weekly)
Updated: 2004-12-13 10:32
China Securities Regulatory Commission (CSRC), the country's securities
watchdog, announced late last Friday the new IPO (initial public offering)
pricing regulation will take effect on January 1.
However, that does not necessarily mean the resumption of IPOs is a sure
thing, experts said.
"Enforcement of the new pricing system is based on an administrative order,
but whether companies will issue IPOs, or even whether CSRC will approve them,
will depend on market conditions," said Han Yi, a senior independent market
observer.
Zhang Gang, a senior analyst with Southwest Securities Research and
Development in Beijing, said: "Market demand is the deciding factor ... CSRC
will closely follow the market, looking for the right timing to approve the
first batch of IPOs."
Even if CSRC gives the go-ahead, some companies will delay their IPOs if the
market is sluggish market, as they will be concerned their shares might traded
below IPO prices, he added.
For example, Shanghai Baosteel, which has received CSRC approval to list, is
suspending its issuance of additional A shares, "because the time is not ripe,"
said Zuo Xiaolei, a financial expert with China Galaxy Securities Co.
Zhang said turnover is an important market indicator.
"If turnover increases in the next few weeks, IPOs will likely be launched."
However, the benchmark Shanghai composite index, which groups foreign
currency B shares and domestic currency A shares, have been hovering around the
1,300- to 1,400-point mark for the past 11 weeks.
Some securities companies hailed the news, and said they were busy preparing
to launch IPOs.
CSRC, in the days prior to implementation of the regulation, will train IPO
issuers, sponsors and institutional investors, to ensure they are familiar with
the new rules.
To be better prepared for the new pricing system, there will be no new IPOs
by year's end, according to a CSRC official.
CSRC in July virtually stopped approving IPOs . On August 30, the commission
announced the draft pricing regulation and officially halted IPO approvals.
However, CSRC still allowed the issuance of additional shares and convertible
corporate bonds.
The regulation, the official said, signifies the establishment of a
market-oriented IPO pricing system in China.
Public shareholders are excluded from CSRC's list of target trainees.
Under the new regulation, IPO applicants, after they receive CSRC's approval,
must inquire about the share prices from at least 20 institutional investors --
for issuances that exceed 400 million shares, the number should be over 50 --
and the IPO price range and price-earning ratio will be based on the inquiries.
The new pricing system will benefit China's stock market in three ways, the
CSRC official said.
First, the release and future adjustment of the new pricing system will
improve China's stock listing mechamism.
Second, it gives institutional investors more say when setting IPO prices.
More institutional investors will get involved, which will pump greater equity
into the market.
At the same time, the sponsors will improve their internal corporate
governance and put more effort into research and development.
However, if the new system reduces risks in the primary market, it may add
risks to the secondary market, an investment banking official with a securities
company in Guangzhou, who refused to be named, said.
There is still a possibility the listed companies and institutional investors
may settle IPO prices under the table, which would harm the interests of
secondary-market investors.
CSRC, while allowing institutional investors greater input, will exclude
public investors from its training list.
Due to technical difficulties, including public investors would complicate
the inquiry process and create unnecessary risks, the CSRC official explained.
"Institutional investors will be asked about the IPO prices because they can
better evaluate the prices."
To protect the interests of public investors, CSRC last Tuesday announced, in
Beijing, regulations aimed at empowering minority shareholders so they can
influence the decision-making process of the companies in which they invest.
The regulations stipulate Shanghai and Shenzhen-listed companies must receive
approval from at least half of the minority shareholders, during a shareholder
conference, when deciding on issues -- including the issuance of new shares and
convertible corporate bonds, major asset restructuring of the listed firms and
the overseas listing of the firms' subsidiaries.
The firms must also make public the number of minority shareholder voters,
their combined stockholding and the ratio of the shares in the listed company.
The rules will act as "transitional measures" before a deeper shareholding
reform occurs, Tong Daochi, deputy director-general of CSRC's department of
listed company supervision.
China's stock market is expected to reach a stable growth rate next year.
The Central Economic Work Conference, held in Beijing from December 3-5,
recently announced prudent fiscal and monetary policies for next year.
"This will ensure the stable growth of our stock market," Zuo said.
"The domestic stock market will be a better barometer for the country's
macroeconomic development, as those companies that contribute much to the growth
will be listed after industrial restructuring."
The anonymous investment banking official said the domestic stock market has
contributed greatly to the country's economic development, and has provided
important financing channels and facilitated deepening financial reforms.
"The stock market must, and will, maintain stable development," he said.
In the past year, government support has played a vital role in helping the
domestic stock market survive historical lows.
After the benchmark Shanghai composite index touched below the
psychologically important 1,300-point mark in September, Premier Wen Jiabao
urged relevant government departments to implement the State Council's
guidelines on capital market development.
The index picked up almost immediately -- followed by other government policy
support.
The government will continue this trend next year, analysts
predict.
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