China's surprise move to slow the pace of mainland initial public offerings in an effort to bolster the secondary market will cloud the fundraising plans of hundreds of companies and weigh on the economy, bankers and lawyers said.
The decision was part of a package of measures unveiled in Beijing over the weekend to revive a lagging stock market and boost investor confidence in the world's second-largest economy, which is fast losing its growth momentum.
China's financial industry has seen a surge in new share sales, with geopolitical tensions and tightened regulatory controls causing domestic IPOs to choose home bourses over offshore stock exchanges.
In a separate study, Dealogic revealed that there has been $39.7 billion worth of IPOs so far this year, down from $68.2 billion at the same time last year, but more than double the $13.1 billion raised in the United States.
The decision to reduce IPOs is due to the impact of a deepening property debt crisis, which has resulted in a significant increase in bond markets and costly opportunities for Chinese private companies.
The decline in China's interest in private equity firms will leave fewer avenues for companies to tap for growth capital and will weigh on their near-term business plans, bankers and analysts said.
China's Securities Regulatory Commission on Sunday said it would begin a phased limit on IPOs in a bid to promote 'dynamic equilibrium' between investment and financing. Bankers expect tougher IPO vetting and a longer registration process.
More than 650 companies are expected to list on the bourses of Shanghai and Shenzhen, according to exchange data.
JAKA Robotics Co, a maker of robotics, is among the companies in the pipeline for a market debut on the mainland, including Shenzhen Chipsbank Technologies Co, a semiconductor firm and Swiss agrichemicals and seeds group Syngenta.
Bankers said the regulatory move to slow the pace of IPOs goes against Beijing's IPO reforms earlier this year, which sought to remove government intervention and introduce a US-style registration-based IPO mechanism.
It's going back to the old, myopic model of controlling IPOs to lift stock prices, said James Wong, an investment banker who declined to be named as he is not authorized to talk to the media.
The IPO system is not genuine, he said.
Even before the decision, banks and lawyers were already grappling with tougher-than-normal questions from stock exchanges regarding company fundraising plans and refinancing projects.
What do you think is the purpose of raising debt? Fraser Howie, author of several books on China's financial system, said: ''I don't think China is a financial hub,'' he said.