 China’s new IPO guidelines which were published on 30 November, will now allow companies to list on the stock exchange: effectively lifting a moratorium on new share offerings which had been in place for over a year. The freeze on new listings was initiated in October 2012 by the China Securities Regulatory Commission (CSRC) when it sought to clamp down on fraud and serious misconduct associated with IPOs in China. Following the new guidelines, it is expected that about 50 companies will be cleared for IPOs by the end of January 2014. (Notably, there are over 700 companies waiting to list in the pipeline.) The aim of the new guidelines is to move China from its current approval based system to a registration system which is more in line with developed economies. Following the reforms, companies will find it much easier to raise capital and significantly for small companies – these changes will enable them to pay off debt and shore up their infrastructure with a view to expansion. It is predicted that these reforms will also bring more foreign investors to the Chinese stock market. The relaxation of the requirements for listing (which previously placed emphasis on the regulator’s approval for new offerings) will have the effect of conferring power on the investors. Importantly as well, and as a corollary to this, it will also dilute the regulator’s former role as gatekeeper, according to “China IPO reforms shift power to investors” – Financial Times, December 3rd 2013. Previously, the regulator was in a position to determine whether a company was sufficiently meritorious to list. Though it is expected that the regulator will still very much be at the helm of the IPO process, investors, underwriters and issuers will have a much larger degree of freedom to manage their own affairs. Partners Candy Chan and Sheldon Tse, Head of Corporate & Securities at King & Wood Mallesons, Hong Kong commented on the reforms and had this to say: “The new IPO vetting regime in China indicates strong reforms in moving away from an approval-vetting to a registration-vetting, disclosure-based prospectus and market-driven underwriting process, more akin to the IPO vetting regime in Hong Kong and other developed markets. This is encouraging for potential listing applicants and market participants because, in the long run, there will be more transparency and consistency in the vetting process. The impact is yet to be seen. These reforms fail to answer the two critical questions for Chinese IPOs: whether high valuations traditionally associated with Chinese IPOs are sustainable post-listing; and whether further relaxation will enable secondary fund-raising post listing?” |
More power (and freedom) in the hands of investors following IPO reforms in China
