China Gives Green Light To Six IPOs Despite Market Volatility

By Mani
Updated on

The China Securities Regulatory Commission approved plans for six initial public offerings, the first IPOs since Shanghai’s benchmark equity index fell into a bear market a couple of weeks ago.

The regulator’s move is contrary to earlier expectations that the CSRC might consider suspending IPOs to stabilize the country’s tumbling stock markets.

Six IPOs cleared

According to a statement published on its website Wednesday, the CSRC indicated that it had approved IPOs for six companies, including Bank of Jiangsu. Nanjing-based Bank of Jiangsu, the country’s third-largest regional commercial bank, will become the first regional bank to list on the mainland’s stock market in nearly eight years.

The other companies that got IPO approval include transportation-systems provider Nanjing Doron Technology, Zhejiang-based port operator Zhoushan Port and car-lubricants maker Qingdao Copton Technology.

Though domestic listings are usually completed within a month of approval from the CSRC, the latest IPO plans could be delayed beyond that, thanks to the jittery state of Chinese financial markets. The Shanghai Composite Index dropped 3.3% on Monday, taking declines to over 22% from the June 12 peak..

As outlined by ValueWalk, contrary to the broader global picture, IPO activity in Greater China boomed in 1H15, and this trend is set to continue as there are around 550 companies in the CSRC pipeline wanting to list on Greater China exchanges. China is reportedly working on draft changes to the Securities Law regulating listings by foreign companies — a step that would help open up China’s market to foreign capital.

Suring IPOs in China

IPOs have been surging after regulators put pressure on companies to keep prices low. While policy makers made no official announcement about a valuation ceiling, data compiled by Bloomberg show that virtually no companies in China are going public at prices of more than 23 times their earnings per share.

As detailed by ValueWalk, the drawback of this system is that the Chinese domestic equity market has excluded many great companies that were initially unprofitable but held high growth potential. Most analysts feel the government should not be eligible to make decisions on whether a particular firm is allowed to be listed on public markets or on how the IPO should be priced.

CSRC has picked up the pace of approving IPOs from once a month to twice a month since April, partly to cool what had been a very hot equity market prior to the recent slide. In June, 48 IPOs were issued to raise a combined capital of 61.4 billion yuan, which was nearly 5 times the amount raised in April.

Earlier, it was anticipated that the CSRC might suspend IPOs to stabilize the country’s tumbling stock markets. It was felt halting IPOs would head off any diversion of funds into new listings and would come on top of a weekend interest-rate cut that was viewed by some analysts as a move to curb Chinese equities’ plunge into a bear market. CSRC has suspended IPOs eight times in the history of the yuan-denominated A-share market, five times since 2000.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!