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 designed to revive a lagging stock market and boost investor confidence in the world's second-largest economy, which is rapidly losing its growth momentum.
The Chinese financial sector had been among the few bright spots in this year, with geopolitical tensions and tightened regulatory regulations resulting in domestic IPO-aspirants choosing home bourses over offshore stock exchanges.
Dealogic reported that 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 the IPOs comes as bond markets are difficult and expensive to tap for China private companies due to the impact of a deepening property sector debt crisis.
This, paired with declining appetite for China investments 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 on Sunday it would start a phased limit on IPOs in a bid to promote '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 firms are waiting to list on the Shanghai and Shenzhen bourses, according to exchange data.
Companies in the pipeline for a market debut on the mainland include robotic manufacturer JAKA Robotics Co, semiconductor firm Shenzhen Chipsbank Technologies Co and Swiss agrichemicals and seeds group Syngenta, which is eyeing a $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.
Is it going back to the old, myopic model of controlling IPOs to lift stock prices, said a Shanghai-based investment banker.
It is not genuine, he said, sparked by the registration-based IPO system.
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? Howie, author of several books on China's financial system, said: ''It is important for China to know that it's a country that's going to invest in its money,'' he said.