18 May 2006
Xinhua Financial Network (XFN) News
(c) 2006 Xinhua Financial Network, Ltd. All rights reserved
(Updating with further details on regulations, analysts comment)
SHANGHAI (XFN-ASIA) - China will resume granting approvals for initial public offerings from today, the China Securities Regulatory Commission (CSRC) said in a statement on its website.
The CSRC issued a draft of the new rules for IPO approvals on April 28 and solicited public opinions from April 28 to May 14.
The provisions in the rules released today, which take effect immediately, are mostly unchanged from the draft version. However they stipulate that newly listed companies, except for financial services firms, cannot invest the money raised from the share sale in companies mainly focused in securities trading.
The securities regulator suspended granting approvals to IPOs or additional share issues in April 2005 in aid of plans to list non-traded state shares.
The timing is seen as positive for the resumption of IPOs as China's A-share markets have turned around in recent months after a four-year decline.
The benchmark Shanghai composite index has gained nearly 70 pct since June 2005 after suffering a steady slide from 2,245 points in mid-2001 to a 998 point low in mid-2005.
"Sentiment has completely turned in the Chinese A-share market so we can expect more IPOs later this year," said Chang Chun, professor of finance at the China Europe International Business School, who added that the domestic market will begin to be seen as a credible option for raising funds by domestic private firms.
However, the benchmark Shanghai Composite Index was down 2.36 pct at 1,585 points at 10:54 am, driven lower in part by concerns that new issues will drive price-earnings ratios lower.
"The IPO resumption will certainly have a long-term negative impact on stock prices, as the P/E ratios of the new issues are expected to be lower than those of current listing peers, which will drag down the overall market P/E ratios," said Wang Xiaoming, an analyst at Xiangcai Securities.
Chang, however, said that the P/E level of China's markets is unlikely to change dramatically and that it will in the near term make the market - long dominated by majority state-owned issues - more attractive to domestic private companies.
"Right now a lot of (private companies) are going to Hong Kong or the United States for listing but Chinese pricing in terms of P/E ratios is higher so I think we will see the A-Share market becoming attractive and expect we will see more private companies listing as well," he said.
Chang added that liquidity concerns were overblown as there is ample liquidity in China, and that it would start gravitating towards the market as sentiment for equities improves.
"There is so much liquidity in the China market because Chinese people save so much money - but a lot of that is in the bank and deposit interest rates that are so low, so there is a lot of money ready to jump in (to the stock market)," Chang said.
Wang said he is not expecting the first IPO approval to be a major firm. "The first issue is expected to be a Shenzhen second-board listing to test the market reaction," he said.
