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 will weigh on the economy, bankers and lawyers said.
The decision is part of a package of measures unveiled 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.
China's financial industry was experiencing a few surges this year, with geopolitical tensions and tightened regulatory regulations causing IPO-aspirants to choose home bourses over offshore stock exchanges.
There have 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 slow IPOs is because bond markets are difficult and expensive to tap for Chinese private companies because of the impact of a deepening property sector debt crisis.
The weak demand 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 said it will start a phased restrictions on IPOs in a bid to promote 'dynamic equilibrium' between investment and financing. It didn't say whether the curbs will last, and bankers expect tougher IPO vetting and a longer registration process.
More than 650 companies are awaiting listing on the Shanghai and Shenzhen bourses, the exchange said.
JAKA robotics Co, a Chinese chip firm and Swiss agrichemicals and seeds firm Syngenta, are among the companies in the market that are looking to make a market debut on the mainland.
Bankers added that 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 register-based IPO mechanism.
It's 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.
The register-based IPO system is not genuine, he said.
Even before the 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? The author of several books on China's financial system, Fraser Howie said in a statement.