Regulations to clean up IPOs
CSRC targets fake documents, fudged financials, suspect companies
Tightened approvals for initial public offering or IPO applications will help boost market trust and improve the quality of new stocks, analysts said.
In October, the China Securities Regulatory Commission constituted a new IPO application review committee. Since then, it approved 44 IPO applications and rejected 24 as of Dec 10.
The new approval rate of about 60 percent is substantially lower than the 80 percent of the first 10 months of this year, according to official data.
The regulator will need to strike a fine balance between nurturing a healthy market and protecting investor interest, while maintaining a market-oriented approach to meet companies’ financial needs, analysts said.
A research note from Shanghai Chongyang Investment Co, an asset manager, said the regulatory focus is not just limited to review of the profitability of companies but takes into account other important factors like the authenticity of financial statements, the rationale for fund-raising, investment plans, corporate governance and risk control.
Tighter regulation will help prevent companies that cook their financial books and engage in fraud from entering the market, which, in turn, will better protect the interests of investors, the firm said in its note.
Gai Binhe, an analyst at Huajin Securities Co Ltd, said stricter regulation and stiffer qualifying standards will likely mark the IPO approval process from now on.
“But the regulator may face greater pressure to maintain a reasonable supply of new shares while ensuring the quality of the IPOs given that there has been a long queue of companies seeking to float shares in the public market,” Gai said.
The IPO review committee under the CSRC has the ultimate say in
Gao Li,