Tight rules lower float approval rate in Jan-May
Only 51 applicants out of 96 receive regulator’s green signal in the Jan-May period
The stock-market regulator’s approval rate for initial public offering or IPO applications plunged in the January-May period as qualityoriented tighter regulations took effect, experts said.
Out of 96 IPO applications received from Jan 1 to May 17, only 51, or 52 percent, were approved by the China Securities Regulatory Commission.
In the same period last year, 178 of the 210 applications, or over 84 percent of the total, received regulatory approval.
Stricter eligibility criteria have kicked in to ensure only quality companies get to raise funds from investors, said Li Daxiao, chief economist at Shenzhen-based Yingda Securities.
“The tightened regulations and rules aim to choose IPO candidates with high quality, as part of the effort to protect investors’ interests,” said Li.
“An analogy might help to understand what’s going on. Imagine a situation where all the Chinese people seek to study in the same university. They would have to wait for 1,000 years or longer in the queue. Not everyone would be admitted. Only a select few with top scores in the qualifying exam will make it.”
Besides, the number of companies that are awaiting the IPO green signal has also plummeted to 287 by May 17 from a peak of 900 in 2016. Shorter queue could shorten the waiting time to less than 10 months from the peak of over 2 years in the past, market insiders said.
Li said companies generally seek to list to raise funds for research, development and business expansion. But some companies, once they get listed, don’t perform very well, suggesting they may have furnished dubious or questionable information during the IPO application stage. If investors buy shares of such companies, they may lose their money.
According to a Xinhua report, the CSRC and stock exchanges have released draft rules in March that will force companies to exit the equity market for any serious violations of regulations, incomplete disclosures, and suppression of market-sensitive information.
The regulators and bourses will also step up efforts to delist “zombie companies” and those with long-term losses and severely poor financial condition, the report said.
CSRC data showed about 130 firms withdrew their IPO applications by mid-May. The corresponding number for 2017 was 146.
Withdrawals were due to some companies failing to meet the standards set for business operations and internal controls on basic accounting. Some firms did not disclose enough information or showed weaker capability to sustain profit, Gao Li, spokesperson of the CSRC, said at a news conference on May 18.
Li of Yingda Securities said if a company’s IPO application is refused, it cannot opt for a backdoor listing in three years.
Backdoor listing is a strategy for companies to get listed by acquiring an already listed company.
“So if they realize that they won’t pass the IPO test of the market regulator, withdrawal is an ideal way to avoid any risk to reputation and future prospects and also to access other financing channels later,” Li said.
China’s securities industry has developed rapidly since the 1990s. By now, China’s stock market capitalization ranks second worldwide, contributing over 10 percent to the global market capitalization, Shao Yu, chief economist at Orient Securities, told China Securities Journal.
Similarly, China’s bond market ranks third after those of the United States and Japan. However, there is still space for further expansion given the country’s strong economic performance, Shao said.
Li said though it will become more and more difficult to get approval for IPOs, high-tech companies and unicorns — startups worth $1 billion or more — are still encouraged to list.
WuXi AppTec, China’s contract research provider, got listed on the main board of the Shanghai Stock Exchange on May 8, marking the nation’s first unicorn to get IPO approval on the A-share market.
The regulator welcomes companies in industries such as biosciences, cloud computing, artificial intelligence and advanced manufacturing, to promote the country’s capital market and foster the new economy, market sources said.
The tightened regulations and rules aim to choose IPO candidates with high quality ... to protect investors’ interests.”
Li Daxiao, chief economist at Shenzhen-based Yingda Securities