Chinese regulators announced they would resume approvals of domestic share IPOs on January 1, 2005, after a four-month suspension and a revamp of the rules.
Future offerings will have to go through a new system that promises a more market-oriented IPO pricing mechanism aimed at firing up investor interest in China's lackluster stock markets.
Under the new terms, sale arrangers will be required to set a price range and then let demand from institutional investors determine the price – basically, a system more in tune with established markets in the West.
The China Securities Regulatory Commission (CSRC) used to impose an unofficial price limit of 20 times earnings on first-time share sales.
The new rules are intended to revamp a system criticized for inflating company valuations and clouding transparency.
The regime will require prospective IPOs and their underwriters to seek the views of at least 20 potential institutional investors before pricing their stock.
Overseas players eligible under the Qualified Foreign Institutional Investor (QFII) scheme will be among those entitled to take part in the process. Larger IPOs of 400m shares or more will be required to consult with 50 such investors. Chinese companies had raised about US$5.8bn, in domestic IPOs this year, before the CSRC ordered a suspension on August 30 to draft new rules. Under the previous system, or so the critics said, companies would set IPO prices artificially low to ensure a big jump on the opening day of trading, making it not uncommon for prices to climb 70-100% on the first day of trading – a practice that discouraged long-term holding. While the CSRC announcement was welcomed by some securities companies, some analysts said it did not necessarily mean IPOs would resume after January 1.
"Enforcement of the new pricing system is based on an administrative order, but whether companies will issue IPOs, or whether CSRC will approve them, will depend on market conditions," one analyst told the China Daily.
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