China regulator urges restraint on high IPO prices

SHANGHAI Sat Jan 30, 2010 3:41am EST

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SHANGHAI (Reuters) - Chinese initial public offerings (IPOs) have tended to be overpriced and institutions should show greater restraint and accountability in pricing, a senior Chinese securities regulator was quoted by official media as saying.

Newly listed mainland shares have met with an increasingly cool reception from investors in recent months as China's IPO pipeline fills up and prospective listees set rich offering prices.

China XD Electric Co (601179.SS), the mainland's first major new listing this year, on Thursday became the first new Chinese share to end below its IPO price on its debut day in more than five years, in sharp contrast with the speculative fervor that greeted new listings as recently as last summer.

"(Institutions should) strengthen their self-regulation, improve their research capability, price-setting ability and accountability, and in the book-building process they must do their utmost to express their true intentions," Zhu Congjiu, assistant to the chairman of the China Securities Regulatory Commission, told a seminar on IPO reform, the official Shanghai Securities News reported on Saturday.

The official China Daily also quoted him as saying: "Some institutions are simply profit-driven and are not responsible when proposing a price. This has helped drive up IPO prices."

The daily added that Zhu's comments signaled the regulator's intention to rein in excessively high valuations by further adjusting the country's IPO pricing mechanism.

The paper also referred to reports that the regulator may delay or suspend the approval of new share issues while it is working on new measures to improve the existing mechanism for IPO price setting and underwriting.

Several new listings that came to market after authorities resumed IPO approvals last June, following a nine-month suspension triggered by the financial crisis, also breached their IPO prices in subsequent months, in part reflecting high IPO prices.

In addition, regulators have stepped up the pace of IPO approvals in recent months, seeking to cool the stock market with increased share supplies as they worried about the potential formation of asset price bubbles.

Analysts noted that XD Electric's IPO, however, had been priced relatively moderately at 34 times 2008 earnings, compared with an average of 50 times for Chinese IPOs over the past seven months and generous valuations for its listed sector rivals.

XD Electric is China's largest maker of electricity transmission and distribution equipment and is expected to benefit from investment in the country's electricity grid.

China First Heavy Industries, the country's second-largest maker of heavy machinery which aims to raise up to 11.6 billion yuan ($1.70 billion) in its Shanghai IPO, on Thursday set an indicative price range for its IPO that valued it at 42 times its 2008 net profit.

($1=6.826 Yuan)

(Reporting by Edmund Klamann; Editing by Sanjeev Miglani)

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