China’s securities regulator plans to tighten supervision of initial public offerings about two months after overhauling rules to prevent overpricing as the watchdog ended a freeze on share sales.
The China Securities Regulatory Commission is planning spot checks of investor roadshows held for first-time sales and will suspend companies found to have disclosed information not contained in IPO prospectuses and other public releases. Underwriters will also be penalized for sharing non-public information with institutional investors, the CSRC said in a statement on its website yesterday.
The stricter measures come after the regulator approved about 50 companies to sell stock in China following new rules in November that aimed at strengthening investor protection and stamping out price manipulation. Jiangsu Aosaikang Pharmaceutical Co. decided last week to push back its 4.05 billion yuan ($669 million) IPO after pricing the sale 21 percent higher than the industry average.
The regulator has failed to curb the over-pricing of new share offerings and IPOs will quicken at an “unprecedented” pace, Chen Li, UBS AG’s China equity strategist, said at a briefing in Shanghai today. China may have 60 to 80 IPOs in each of the three months to June, Chen said.
Nanjing-based Aosaikang, which makes cancer drugs, said Jan. 10 it delayed the offering because the sale would have been “relatively large.” The deal valued Aosaikang at 67 times 2012 earnings, compared with the average 55.3 times for ChiNext-listed drugmakers, the company said, citing Shenzhen Securities Information Co. data.
China’s ChiNext market is dominated by private companies in fledgling industries such as technology and health care.
In its measures yesterday, the CSRC ordered companies seeking to price IPOs at valuations higher than the industry average to make weekly risk disclosure reports before marketing stock to individual investors. The CSRC will randomly check IPO book-building activities and ban institutional investors who fail to meet criteria for participation from being involved in future pricings for initial sales.
Rich valuations helped make China the world’s largest IPO market in 2010, when price-to-earnings ratios of Chinese IPOs averaged 58 times in 2010, according to former CSRC Chairman Guo Shuqing.
The watchdog’s new measures prompted at least five companies including Ciming Health Checkup Management Group Co. and Netposa Technologies Ltd. to postpone their IPOs, according to statements on the Shenzhen Stock Exchange’s website today.
Most of the companies that pass review meetings will be able to start selling shares from March after submitting their 2013 annual reports, the regulator said on its microblog on Jan. 10. The regulator has said it will take about a year to clear a backlog of more than 700 IPO applications.