Stricter con­trols of back­door list­ing help rein in ex­u­ber­ance in the A-share mar­ket

China Daily (Hong Kong) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

Two stock ex­changes in the Chi­nese main­land ac­counted for al­most 32 per­cent of the IPOs world­wide in the first half of this year, ac­cord­ing to a re­port pub­lished by pro­fes­sional ser­vices provider Ernst & Young.

But the money that will likely be raised via the A-share mar­ket IPOs is ex­pected to fall in the sec­ond half.

The Shen­zhen Stock Ex­change topped global bourses with 126 IPOs in the first half, fol­lowed by Shang­hai with 120 and Hong Kong with 69.

In all, there were 772 IPOs glob­ally that raised $83.4 bil­lion. In terms of pro­ceeds, New York topped the list, fol­lowed by Shang­hai and Shen­zhen.

IPOs in China’s A-share mar­ket raised 125.6 bil­lion yuan ($18.47 bil­lion) in the first half, up 336 per­cent year-on-year.

Shen Yan , EY as­sur­ance ser­vice part­ner, said, “The num­ber of com­pa­nies seek­ing to go pub­lic, which sought the ap­proval of the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, dropped 20 per­cent from the end of last year to 585.”

Shen said IPO ap­provals in the first half were stricter. The re­jec­tion rate rose to 14 per­cent from 7 per­cent of the pre­vi­ous year.

In­dus­trial en­ter­prises in the A-share mar­ket topped the list, both in terms of the num­ber of IPOs (79) and the amount raised (34 bil­lion yuan).

Com­pa­nies en­gaged in telecom­mu­ni­ca­tions, me­dia, tech­nol­ogy, ma­te­ri­als, con­sumer prod­ucts, re­tail and health­care were also prom­i­nent in the IPO list.

Fi­nan­cial ser­vices IPO pro­ceeds shrunk as there were not many large banks that sought to list dur­ing the pe­riod.

Strict con­trol of back­door list­ing — the prac­tice of big­ger un­listed com­pa­nies buy­ing out smaller listed com­pa­nies and then car­ry­ing out re­verse merg­ers to be­come listed — has led to a sig­nif­i­cant de­crease in back­door A-share IPOs to only four from 12 in the first half of last year.

“In the sec­ond half of this year, the A-share mar­ket is ex­pected to see a de­crease in IPOs and an in­crease in small and medi­um­sized com­pa­nies’ IPOs,” said Shen.

The in­clu­sion of China A shares in the MSCI Emerg­ing Markets In­dex will at­tract more in­ter­na­tional cap­i­tal flows, he said.

The EY re­port showed that the 69 com­pa­nies that went pub­lic in Hong Kong in the first half raised HK$53.8 bil­lion ($6.9 bil­lion), up 24 per­cent year-on-year. The num­ber of IPOs rose 82 per­cent.

Ter­ence Ho, EY Greater China Strate­gic Growth Markets and IPO leader, said the surge in Hong Kong IPOs was led by the re­cov­er­ing fun­da­men­tals of emerg­ing economies, the low val­u­a­tion of Hong Kong stocks as well as the in­creased cap­i­tal in­flows from the main­land through the Shang­hai-Hong Kong and Shen­zhen-Hong Kong Stock Con­nect pro­grams.

“Hong Kong is ex­pected to raise about HK$200 bil­lion through IPOs in 2017, the same as in 2016.”

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