China will allow initial public offerings only after new rules aimed at boosting protection for investors go into effect, a China Securities Regulatory Commission official with knowledge of the matter said.
Companies that have already been cleared by the regulator in a listing hearing will be allowed to proceed with their share sales if they fulfill the new requirements, said the official, who asked not to be identified because he wasn’t authorized to speak publicly about the matter. The regulator is seeking public feedback on the proposed rules until June 21.
Chairman Xiao Gang, who took the helm at the regulator in March, is extending predecessor Guo Shuqing’s measures to combat fraud in capital markets by cracking down on brokerages that fail to properly review clients’ filings. The CSRC has also been auditing offer documents since December after initially stopping IPO approvals in October as the benchmark stock index fell more than 5 percent in the first nine months of 2012.
“The resumption of the IPO market will definitely be positive to brokerages,” said Niu Bokun, an analyst at Hua Chuang Securities Co. in Beijing. “Revenue from underwriting business has dropped sharply since the IPO suspension.”
The number of Chinese companies seeking to sell shares in IPOs had climbed to more than 800 in December, according to data from the CSRC. About 80 of those companies had cleared the listing hearing as of June 7, according to the regulator.
The CSRC will probably resume approving IPOs at the end of July, Reuters reported earlier yesterday, citing unidentified people present at an industry meeting with the regulator.
The securities regulator plans to restrict companies and their major stakeholders from selling stock below the initial public offering price for two years after the lock-up period ends, according to the proposed rules posted on the CSRC’s website earlier this month. Issuers may be required to prepare and disclose plans to stabilize share prices that fall below the net asset values within five years of their trading debut, the draft requirements show.
IPO underwriters may also face greater scrutiny under the proposal. If a company reports a net loss or a profit drop of more than 50 percent in the same year as its IPO, the securities regulator will stop reviewing any applications submitted by the investment bank that advised it for an unspecified period of time, according to the draft rules.
“The new rules focus more on letting market forces play a bigger role in improving the quality of company disclosures,” said Niu at Hua Chuang Securities.
The securities watchdog has stepped up enforcement of regulations since Xiao took office in March by rebuking or punishing at least three brokerages for inadequate due diligence on IPOs. It fined Ping An Securities Co. and barred the firm from underwriting operations for three months, while Minsheng Securities Co. was given a warning and fined. Nanjing Securities Co. was censured, and bankers at all three firms were barred from the securities industry for life last month.
— With assistance by Aipeng Soo, and Jun Luo