Brokerages Jump as China Signals New IPO System: Hong Kong Mover

Citic Securities Co. shares rose the most this year, leading gains among Chinese brokerages as the government flagged policy changes that portend the end of a 14-month ban on initial public offerings.

Citic Securities, China’s largest brokerage by market value, surged 12 percent in Hong Kong, the biggest intraday gain since Dec. 1, as of 1:52 p.m. local time. Haitong Securities Co., the nation’s second-biggest brokerage, jumped 10 percent to an eight-month high. The Hang Seng Index advanced 2.7 percent.

Policy makers will seek to “push forward reform for a registration system” on IPOs, according to a Nov. 15 statement posted on the Chinese government’s website detailing decisions from a Beijing meeting of the Communist Party’s Central Committee last week. The new system may hasten the approval process for the more than 700 companies still awaiting regulatory permission to proceed with their share sales.

“The intensity of market reform on the review and approval end will increase in the future,” Zhao Xianghuai, an analyst at Guotai Junan Securities Co. in Shanghai, wrote in a research note today. “Brokerages’ investment-banking revenue will rebound if IPOs resume and that will benefit their private-equity and fund-management businesses.”

In the biggest expansion of economic reforms since at least the 1990s, China’s leaders also vowed to expand farmers’ land rights, loosen the one-child policy and encourage private investment in state businesses. Local governments will also be able to sell bonds to fund construction.

Registration System

The leaders also decided during the four-day conclave to further increase the share of direct financing, such as stock and bond sales, in the economy, according to the government statement. Direct financing accounted for 35 percent of China’s total financing in 2012, compared to about 40 percent to 50 percent in the U.S., according to Guotai Junan’s Zhao.

The government’s statement didn’t provide any specific details on the registration system.

Under that process, companies will be required to submit information to regulators, whose sole responsibility will be to make sure the submissions meet disclosure requirements rather than making judgments on the applications, Qi Bin, the head of the China Securities Regulatory Commission’s Beijing Institute of Securities and Futures research unit, wrote in a footnote of a July 23 article discussing the nation’s capital market.

The current procedure for companies seeking to sell their shares publicly in China relies on the CSRC’s listing committee vetting each application and determining whether a company is fit for listing.

— With assistance by Aipeng Soo

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