China's move to slow pace of IPOs clouds economy

China's move to slow pace of IPOs clouds economy

The 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 proposed by Beijing over the weekend to revive a lagging stock market and boost investor confidence in the world's second-largest economy, which is rapidly losing its growth momentum.

This year, new shares on the mainland had been one of the few bright spots in the Chinese financial sector, with geopolitical tensions and tightened regulatory rules prompting IPO-aspirants to choose home bourses over offshore stock exchanges.

Dealogic said that the total value of IPOs so far this year has been $39.7bn, down from $68.2bn at the same time last year but more than doubled the $13.1bn raised in the United States.

The impact of a severe property sector debt crisis is causing the decision to slow IPOs, as bond markets are tough and expensive to tap for Chinese private companies.

This, along with the declining appetite for China investment by 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.

The China Securities Regulatory Commission on Sunday said it will begin a phased restriction on IPOs in a bid to encourage 'dynamic equilibrium' between investment and financing. It didn't say how long the curbs will last, and bankers expect tougher IPO vetting and a longer registration process.

More than 650 companies are awaiting to list on the Shanghai and Shenzhen bourses, according to exchange data.

Companies in the market for their market debut on the mainland include robot maker JAKA Robotics Co, semiconductor firm Shenzhen Chipsbank Technologies Co and Swiss agrichemicals and seeds group Syngenta, which is expected to have a $US$9 billion IPO this year.

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 is going back to the old, myopic model of controlling IPOs to lift stock prices, said a Shanghai-based investment banker, who declined to be named as he is not authorized to talk to the media.

IPO system based on registration is not genuine, he said.

Even before the latest decision, bankers and lawyers were already grappling with tougher-than-normal questions from stock exchanges over company fundraising plans and refinancing projects.

What is the purpose of raising debt? Fraser Howie, a leading author of several books on China's financial system, said: Why do you think it's time to write about China's financial system.