Dis­clo­sure rules bring clar­ity

New IPO reg­u­la­tions aim to al­lay con­cern of po­ten­tial share in­vestors

China Daily (Canada) - - BUSINESS - By XIE YU in Shang­hai xieyu@chi­nadaily.com.cn

A clearer pic­ture of com­pa­nies about to go pub­lic is emerg­ing with the reg­u­la­tor man­dat­ing more com­plete dis­clo­sure from the first group of Chi­nese en­ter­prises to is­sue shares un­der new reg­u­la­tions.

Three of the first 11 com­pa­nies to get IPO ap­provals — Guang­dong Xin­bao Elec­tri­cal Ap­pli­ances Hold­ings Co Ltd, Zhejiang Wolwo Bio-Phar­ma­ceu­ti­cal Co and Truk­ing Tech­nol­ogy Ltd — in­cluded earn­ings fore­casts for the first quar­ter of 2014 in their prospec­tuses, in ad­di­tion to ful­lyear data for 2013.

Un­der IPO rules re­leased by the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion in Novem­ber, prospec­tuses must in­clude up­dated fi­nan­cial data and sup­ple­men­tal in­for­ma­tion about de­vel­op­ments that oc­cur af­ter com­pa­nies sub­mit fi­nan­cial re­ports to IPO re­view­ers.

The rules don’t, how­ever, specif­i­cally re­quire fore­casts for earn­ings and other fig­ures.

“It seems some com­pa­nies are try­ing their best to pub­lish the most up­dated in­for­ma­tion to at­tract in­vestors, which is in line with the di­rec­tion of the CSRC’s re­forms,” said Vivien Xu, an in­vest­ment banker based in Guangzhou.

Xu said in­vest­ment bankers are un­der “big­ger pres­sure” since the CSRC is­sued the IPO rules.

“Con­flict­ing in­for­ma­tion or changes to im­por­tant data could lead to an ap­pli­ca­tion’s re­jec­tion and the bankers on the deal be­ing barred from fil­ing new ap­pli­ca­tions for a year,” Xu said.

She noted that there is al­most no room for false­hood un­der the new rules.

Un­der­writ­ers and other in­ter­me­di­aries will also be held ac­count­able if mis­lead­ing state­ments or ma­jor omis­sions are found in the IPO process.

“The CSRC is putting more re­spon­si­bil­ity on in­ter­me­di­aries. A sig­nif­i­cant por­tion of the com­pa­nies seek­ing an IPO will not be able to pass the vet­ting process of in­ter­me­di­aries. Mean­while, un­der­writ­ing fees will rise,” said a Shang­hai-based in­vest­ment banker.

Ma­jor share­hold­ers must also dis­close their in­ten­tions to re­duce their stakes in the fu­ture and the terms they seek in IPO prospec­tuses.

Xu said that this pro­vi­sion of the IPO rules is meant to ease in­vestor con­cerns about such post-IPO sales sud­denly drain­ing cap­i­tal from the mar­ket.

Stakes held by con­trol­ling share­hold­ers and se­nior man­agers of listed com­pa­nies in China have in the past been locked up for any­where from six months to five years af­ter ini­tial of­fer­ings.

Un­der the CSRC’s new rules, any sale of such shares within two years af­ter the lock-up pe­ri­ods ex­pire may not be at a price lower than the IPO price.

Xin­bao Elec­tri­cal Ap­pli­ances and Truk­ing Tech­nol­ogy (which makes phar­ma­ceu­ti­cal equip­ment) both said in their prospec­tuses that their big­gest share­hold­ers would ex­tend the lock-up pe­riod of their shares by two years.

That means those shares won’t be traded in the five years af­ter list­ing.

The bench­mark Shang­hai Com­pos­ite In­dex slid by al­most 7 per­cent in 2013, mak­ing it Asia’s worst-per­form­ing bench­mark eq­uity in­dex.

The Shang­hai Stock Ex­change’s res­o­lu­tions for 2014 in­clude strength­en­ing pro­tec­tion for small in­vestors and “safe­guard­ing jus­tice” on the mar­ket.

The SSE said it will di­ver­sify its prod­ucts to sat­isfy in­vestor de­mand, im­prove the struc­ture and qual­ity of listed com­pa­nies and push for bet­ter in­for­ma­tion dis­clo­sure.

“We can’t pre­dict the mar­ket trend in 2014, but we be­lieve stronger pro­tec­tion of in­vestors will help im­prove the users’ ex­pe­ri­ence and at­tract more in­vestors,” a se­nior of­fi­cial of the ex­change said, ac­cord­ing to the China Se­cu­ri­ties Jour­nal.

SSE Chair­man Gui Minjie said pre­vi­ously that the ex­change will pur­sue broad re­form of the en­tire trans­ac­tion process, in­clud­ing of­fers, list­ings, re­funds and delist­ing. In­for­ma­tion dis­clo­sure must be more ef­fi­cient if the SSE’s blue-chip mar­ket is to

first be a key plat­form for cap­i­tal and re­source al­lo­ca­tion.

Shares fell on Thurs­day in the first day of 2014, as in­vestors fret­ted about slower eco­nomic growth af­ter of­fi­cial and pri­vate man­u­fac­tur­ing sur­veys showed weaker fac­tory ac­tiv­ity in the last quar­ter of 2013.

The CSI300, which cov­ers the lead­ing Shang­hai and Shen­zhen A-share list­ings, fell 0.4 per­cent, while the Shang­hai Com­pos­ite In­dex slid 0.3 per­cent to 2,109.38 points.

Fig­ures re­leased on Wed­nes­day showed the of­fi­cial Pur­chas­ing Man­agers’ In­dex slid to a four-month low in De­cem­ber, while a pri­vate re­port Thurs­day also sig­naled that man­u­fac­tur­ing grew at a slower pace.

“The weaker PMI prob­a­bly her­alds a weak start of eco­nomic growth this year as China is still find­ing a new growth model,” said Wang Zheng, the Shang­hai-based chief in­vest­ment of­fi­cer at Jingxi In­vest­ment Man­age­ment Co.

“The weaker econ­omy will hold back stocks.” Bloomberg con­trib­uted to this story.


In­vestors pon­der trans­ac­tions at a bro­ker­age in Fuyang, An­hui prov­ince, on Thurs­day. The Shang­hai Com­pos­ite In­dex slid 0.3 per­cent to 2,109.38 points on Thurs­day. It dropped by al­most 7 per­cent in 2013, mak­ing it Asia’s worst-per­form­ing bench­mark eq­uity in­dex.

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