China's Proposed IPO Overhaul Comes With Restrictions

  • In Business
  • 2023-02-02 02:27:03Z
  • By Bloomberg

(Bloomberg) -- China's planned easing of rules for initial public offerings across all its exchanges comes with restrictions telling bankers that some firms will need to seek special permission to sell shares.

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The China Securities Regulatory Commission on Wednesday unveiled a long-awaited plan to roll out a registration based listing mechanism to all domestic stock exchanges in a bid to fuel access to funding in the nation's $11 trillion equity market for millions of smaller companies. The regulator is now seeking public feedback on the draft rules until Feb. 16.

At the same time, it issued new guidance to investment bankers to restrict certain firms from floating shares under the new mechanism, said people familiar with the matter who asked not to be named as the information isn't public.

Financial firms and Internet platform companies would need to obtain approval from industry watchdogs before seeking a listing, while liquor companies and tutoring firms are banned and those involved in Covid testing related business are discouraged from selling shares, according to the guidelines.

The CSRC didn't immediately respond to a request for a comment.

The reform builds on rules adopted by Shanghai's Star board in 2019, Shenzhen's ChiNext in 2020 and the Beijing Stock Exchange in 2021 and will shorten review periods and ease domestic listings. Those boards had similar restrictions on IPOs, banning financial firms, real estate and tutoring companies as well as those in sectors that need to be phased out as part of China's structural reform.

China International Capital Corp. rose 2.6% and CSC Financial Co. slid 1% as of 10:25 a.m. in Hong Kong trading.

The move adds to a decade-long effort to liberalize the stock market just as tensions with the U.S. on trade, technology and audit inspections have been driving more Chinese firms to sell shares at home. Expediting the listing process and allowing more freedom in setting prices, will likely further propel the country's IPO market that bucked a global slump last year with a record $92 billion in proceeds.

"The roll-out of the registration reform will enable the capital markets to play a bigger role in supporting the economy," said Yang Delong, chief economist at First Seafront Fund Management Co. "It also means the domestic share issuance mechanism is gradually becoming mature."

Listings on the main boards of Shanghai and Shenzhen exchanges will still need regulatory approval from the CSRC before the new rules take effect, the watchdog said. Trading rules on the boards will also be modified, with no daily limits for the first five trading days but with a cap of 10% on both sides starting on the sixth day.

The wider adoption of the experiment, based on US models, was an acknowledgment of the success of the yearslong pilot program to let market forces play a bigger role, aligning Chinese bourses closer with their global peers.

Brokers stand to benefit as the move will boost their income and drive a recovery in stock valuations, China Securities Co. said in a report on Thursday. Leaders in investment banking like Citic Securities Co. and China International Capital Corp. are among the biggest winners, according to a GF Securities Co. research.

The reform has attracted a number of high profile offerings. On Shanghai's technology-focused Star board, chipmaker Semiconductor Manufacturing International Corp. raised 53 billion yuan ($7.9 billion) domestically in July 2020. Seed and fertilizer giant Syngenta Group was expected to launch a potential 65 billion yuan listing on the board in 2022, paving the way for one of the world's biggest listings.

--With assistance from Zhang Dingmin.

(Adds details throughout.)

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