Companies in China are rushing to withdraw their market listing plans as the country’s securities regulator ramps up scrutiny of initial public offerings (IPOs).
Some 47 Chinese firms have pulled their listing plans so far this year, compared with 29 withdrawals during the same period one year earlier, data from stock exchanges showed.
“Under high-pressure regulation, the number of IPO withdrawals reached a new high,” securities broker Shenwan Hongyuan said in a note.
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The China Securities Regulatory Commission (CSRC) has, since last year, ramped up regulation around new share sales on the country’s stock indexes.
In August, the regulator decided to restrict IPOs on the mainland to promote a “dynamic equilibrium” between investment and financing.
Beijing also stepped up scrutiny of offshore listings by Chinese firms last year, implementing a long-drawn approval process that caused months worth of logjams.
The scrutiny has only tightened this year, with the CSRC, under its chairman Wu Qing, fining Shanghai-based semiconductor company S2C Ltd for fraud in its listing application earlier this month.
That was despite S2C’s IPO plan being cancelled in July 2022.
A CSRC official said on Friday that share issuers will face heavy penalties for accounting fraud, and the watchdog will conduct more on-site inspections.
The CSRC has also solicited regulatory opinions from market participants amid other measures to restore confidence in the country’s sinking equity markets that are lingering near five-year lows.
The Shanghai Composite and the blue-chip CSI 300 are down more than 8% and 14% respectively since last year, despite charting a significant rebound this month. Their gains, ranging between 3-5%, have likely been on the back of by massive share-buying by Chinese state-backed entities.
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‘Quality over quantity’
Increasing scrutiny has piled on challenges for Chinese firms looking to raise capital in a beaten-down economy.
China’s new share sales, which once dominated the global IPO market going by proceeds, already slowed late last year.
Some 313 companies completed IPOs in China last year, raising 356 billion yuan ($49.5 billion) in total, down from 424 IPOs and 587 billion yuan raised in 2022, according to Guotai Junan Securities.
Last week, the Shenzhen Stock Exchange terminated IPO plans of appliance maker Ningbo Borine Electric Appliance Co and diagnostics firm Fapon Biotech, after the firms requested to withdraw their listing applications.
The earlier fine on S2C would mean ”that the regulators’ punishment of fraudulent issuances has been moved to the IPO review stage,” said Shenwan Hongyuan Securities.
“A-share IPOs will enter an era where quality is more important than quantity,” the brokerage said referring to shares listed on the Chinese mainland.
- Reuters, with additional editing by Vishakha Saxena
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