* Firms suspend listing plans after CSRC announces tighter
* Regulators concerned about overly aggressive pricing
* Setback for efforts to give markets "decisive" role in
* Follows another suspension on Friday
(Recasts, adds analyst comment)
By Pete Sweeney and Lu Jianxin
SHANGHAI, Jan 13 Five Chinese companies said on
Monday they were postponing initial public offerings (IPOs), in
a blow to Beijing's reformist drive to give market forces a
"decisive" role in the country's stock exchanges.
The China Securities Regulatory Commission (CSRC) announced
in late 2013 that it would move to give investors, not state
officials, the primary role in deciding who gets to list and at
But concerns about overpricing and insider cashouts appear
to have convinced regulators they needed to step in to prevent
the process from being corrupted, further damaging already shaky
confidence in the country's stock markets.
"When I saw that the pharma deal had been pulled, it was
honestly a bit depressing," said a Hong Kong-based investment
banker, who declined to give his name because he is involved
with underwriting deals in China.
"It just shows that the CSRC still has its hands held
tightly on the tiller."
Along with its plans to abandon the current approval-based
system for stock listings in favour of the kind of
registration-based system employed in mature stock markets, the
CRSC had also announced in December that it would allow IPOs to
resume in January after being frozen for more than a year.
The decision was accompanied by a series of related reforms
to the pricing of IPOs, and the initial wave of filings appeared
promising, with the first two firms to start fundraising
attracting massive investor interest.
But since Friday six companies have announced they will
voluntarily suspend their listing plans. Sources told Reuters
that in the case of drug maker Jiangsu Aosaikang, the suspension
announced at the end of last week was the result of CSRC
pressure. The CSRC has denied this.
The latest postponements followed a weekend announcement by
the regulator that it would further tighten supervision.
On Sunday, the CSRC said that any company that priced its
IPO at a premium to its industrial peers in the secondary
market, measured by the respective price-to-earnings (PE)
ratios, must delay opening subscriptions to retail investors by
three weeks while it publishes repeated risk warnings.
It also said it would conduct random spot checks of
book-building and road shows - the processes in which banks
assess demand for offerings and then market the sales.
In response, five more companies put their IPOs on hold on
Monday, citing the CSRC statement as the reason.
The five companies were NetPosa Technologies Ltd, Hebei
Huijin Electromechanical Co Ltd, Nsfocus Information Technology
Co Ltd, Beijing Forever Technology Co Ltd and Ciming Health
Checkup Management Group Co Ltd.
"If you want to allow the market to set prices, the market
has to work properly, and clearly the market is not working
properly," said Wei Yao, China economist at Societe Generale in
Hong Kong. "This is a way of sending a warning to the market
that the CSRC is determined to get what it wants."
Nevertheless, it is doubtful that the CSRC is happy about
headlines highlighting problems so early, given than there are
nearly 750 more companies still queued to list.
"The latest statement by the CSRC won't do much to change
the fact that IPO reforms appear to have failed," said Zhang Qi,
senior stock analyst at Haitong Securities in Shanghai.
"For example, the new reforms permit existing shareholders
to cash out at the IPO, while in the past they needed to wait
for lock-up periods to expire before selling. This has only
encouraged issuers and underwriters to price their IPOs as high
as they can."
Analysts pointed out that the bulk of the shares to be sold
during Aosaikang's IPO were existing shares held by management,
not new issues. That, plus the fact that the shares were priced
much higher than industry peers, suggested insiders were trying
to offload stock at an artificially high premium, they said.
Zhang said that in some cases during the book-building
process he had seen the highest quotes come in four or five
times above the lowest quotes, which he said suggested someone
was trying to manipulate the IPO price.
"These ridiculous ranges mean small investors will be forced
to buy IPO shares at unreasonably high prices," he said.
This would mark a failure to resolve a recurring problem in
China's IPO market: the tendency for shares to debut with
exuberant "pops", or jumps in price on listing day, but fall
below the IPO price soon afterwards and stay there indefinitely,
benefiting insiders who participated in the IPO at the expense
of ordinary investors.
BACK IN CHARGE
The problem is that by managing the market for the benefit
of small investors, the CSRC is by definition moving away from
letting it operate independently.
But for now, economists don't think China has much choice,
given distortions in other parts of the market.
For example, many Chinese executives at companies in line to
list grew up in a far more opaque business culture, when the IPO
process was primarily intended to facilitate fundraising and
industrial consolidation at state-controlled monopolies.
But forcing managers to change their attitudes is far more
"It's not the job of the regulator to say how you should
manage your company," said Steve Wang, China analyst at Reorient
Research in Hong Kong. "That's between you and your investors."
In addition, the depth of Beijing's commitment to market
reform remains untested. China has committed to pushing market
reforms, but it has not suggested that the state is abandoning
what Chinese conservatives see as a fundamental responsibility
to manage the economy.
Chinese equity indexes have been some of the world's worst
performers in recent years, with many domestic investors souring
on Chinese stocks in general given the market's reputation for
insider trading and price manipulation.
The CSI300 Index has lost nearly 11 percent over
the last four weeks since IPOs resumed, and it is down more than
19 percent since markets peaked in February 2013 in response to
the IPO freeze.
Indexes eased slightly again on Monday, with the CSI300 down
0.2 percent at midday.
(Additional reporting by Michael Flaherty; Editing by Alex