IPO market resumes after four-month hiatus, brokers to
Send a link to a friend
[June 10, 2014]
By Kazunori Takada and Elzio Barreto
(Reuters) - The reopening of mainland China's IPO market
with seven new listings announced on Tuesday is good
news for investors, although analysts said brokerages
could be forced to slash their earnings forecasts after
a four-month hiatus in activity.
The new offerings come after the China Securities Regulatory
Commission (CSRC) said late on Monday it had given final approval to
10 firms seeking to list on the Shanghai or Shenzhen stock
exchanges, giving an official green light to the IPO market which
had been dormant since February.
While the new activity will be a relief for investors eager to put
their money to work, it underlines concerns that mainland initial
public offerings will fail to live up to expectations this year and
brokers could be left to rue upbeat revenue forecasts.
The seven companies which include Guangdong Ellington Electronics
Technology, Shanghai Beite Technology and Shanghai Lianming
Machinery, aim to raise a total of about 16 billion yuan (£1.53
billion), according to their prospectuses published on Tuesday.
Three will list in Shanghai and four on the smaller Shenzhen
The CSRC last month said it was planning about 100 new listings this
year, which would take the expected 2014 tally to 150 or only half
the number forecast by consultants including PwC.
"Lower-than-expected IPO volumes definitely will drag down revenue
and earnings for brokers this year, versus previous forecasts," Jian
Li, an analyst with Macquarie Capital Securities in Hong Kong, said.
He said the revised IPO forecasts could wipe out 3 percent to 6
percent of brokerages' predicted earnings this year.
Brokerages that focus on mainland China deals include CITIC
Securities, Haitong Securities and Guosen Securities.
The CSRC let around 50 companies list in January and February,
marking the end of a suspension of IPO approvals that began in late
2012 but was never officially confirmed.
However, there had been no listings since then and the CSRC had not
clarified the situation until it announced the 10 approvals late on
Prior to the resumption, the CSRC had said it was aiming to
transform the IPO market to a registration-based system similar to
that deployed in the United States, where market reception dictates
how offerings are priced, when companies list and how their shares
[to top of second column]
The biggest challenge for regulators will be to manage investors'
expectations and pent-up demand. In a country like China, where
nearly three-quarters of trading comes from retail investors,
secondary market performance is also a concern.
"The market has been soft since they announced the reopening of the
IPO markets. Given the softness, you want to make sure it goes well
and it doesn't destabilize the index," said a Hong Kong-based
investment banker, who declined to be named because of the
sensitivity of the matter.
The CSI300 Index, which tracks the largest listed firms in Shanghai
and Shenzhen, is down 12.5 percent so far in 2014, while the
Shanghai Composite Index is down 3.9 percent.
China accounted for 40 percent of Asia ex-Japan investment banking
fees in 2013, according to Thomson Reuters/Freeman Consulting Co
(Additional reporting by Shanghai Newsroom and David Lin; Editing by
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.