Interrupted public offerings

The CSRC continues to hold back listings on the A-share market

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11 Jan 2013
Week in China

For the bosses of many Chinese firms, running a listed company is a mark of distinction – something that can differentiate them from their peers. But the exclusivity factor has waned in Jinjiang, a city in Fujian, where companies have chased listings with such gusto that it has led to imbalances in the local economy.

The estimate is that at least 30 companies from the city have gone public, with a total market capitalisation of Rmb180 billion ($28.9 billion), reports Century Weekly. With local firms listed in overseas markets like Malaysia and Germany too, it’s hard to keep count of the final total.

Such ready access to capital appears to be a good thing, especially for a city with a strong private economy. But some fear that the influx of funding has had less welcome consequences, especially in generating overcapacity in the city’s main industry, sportswear.

The local government has clearly played a part in the city’s stock market forays. It actively encouraged Jinjiang’s sportswear firms to raise money, hoping their expanded production lines would capture demand generated by the Beijing Olympics.

But some of the enthusiasm for sportswear has tailed off post-Olympics. Some of Jinjiang’s largest clothing companies – Anta and Peak Sport Products among them – are now closing retail outlets, reports Century Weekly.

Nonetheless, the interest in IPOs hasn’t dwindled. Jinjiang’s local government says that there are still 107 companies wanting to go public.

Few are likely to get the green light for listing right now, mind you. IPOs are out of favour in China. At the end of 2012 there were 809 companies waiting to receive listing approval from the China Securities Regulatory Commission (CSRC). That marks the largest ever queue in the history of China’s capital markets, reports the Economic Observer.

So far this year there has been little sign of movement and bankers told the South China Morning Post that the suspension could last until after Chinese New Year, in late February. Others are expecting a longer freeze: “The regulator has no clear-cut plans on how long the IPO ban will last,” an anonymous source told the newspaper.

The suspension is part of the CSRC’s campaign to restore confidence in China’s domestic stock market, where investors have endured years of poor performance. The Shanghai Composite has dropped more than 30% since the end of 2009 (although it has enjoyed a bit of a rally in the past few weeks) and one of the complaints about the market in the past was that too many new listings kept on coming, leading to an oversupply of stock during periods in which demand was tepid.

The IPO halt is not unprecedented. During the financial crisis, the regulator blocked new listings between September 2008
and June 2009. But the ban is unpopular with many parties. Private equity investors dislike it because it takes away an avenue through which to cash out of their investments and brokerages that underwrite IPOs are unimpressed too. The Economic Observer notes that financial firms have been implementing layoffs, like Huatai Securities, which has shed 100 staff from its investment banking division.

Companies are still eager to join the queue to go public. At least 32 more candidates applied for an IPO in the first week of 2013, according to news website China.org.cn. But the more credible candidates might be buoyed by news in 21CN Business Herald that the CSRC has asked all those waiting to IPO to submit their 2012 financials for scrutiny as part of an effort to weed out unqualified applicants. That is likely to end up with a shortening of the queue. 21CN predicts that as many as 30% of those on the IPO list could withdraw their applications, either because they performed poorly last year or on fears that former wrongdoings might come to light.

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