China companies' fundraising options narrow after IPO restrictions
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[August 29, 2023] By
Samuel Shen and Kane Wu
SHANGHAI/HONG KONG (Reuters) - China's surprise move to slow the pace of
mainland initial public offerings (IPOs) in an attempt to bolster the
secondary market will cloud the fundraising plans of hundreds of
companies and will weigh on the economy, bankers and lawyers said.
The regulatory decision was part of a package of measures unveiled by
Beijing over the weekend to revive a lagging stock market and boost
investor confidence in the world's second-largest economy, which is fast
losing its growth momentum.
New share sales on the mainland had been one of the few bright spots in
the Chinese financial sector this year, as geopolitical tensions and
tightened regulatory curbs prompted domestic IPO-aspirants to choose
home bourses over offshore stock exchanges.
There has been $39.7 billion worth of IPOs so far this year, Dealogic
data showed, down from $68.2 billion at the same time last year, but
more than double the $13.1-billion raised in the United States.
The decision to slow IPOs comes as bond markets are difficult and
expensive to tap for Chinese private companies due to the spillover
effect of a deepening property sector debt crisis.
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This, coupled with diminishing appetite for China investments by private
equity firms, will leave fewer avenues for companies to tap for growth
capital and will weigh on their near-term business plans, bankers and
analysts said.
"Slowing the pace of IPOs will have little impact on the equity markets
but will further dampen access to capital for the private sector at a
time when the economy sorely needs a boost," said Orient Capital
Research Managing Director Andrew Collier.
The China Securities Regulatory Commission (CSRC) said on Sunday it
would start a phased restriction on IPOs in a bid to promote "dynamic
equilibrium" between investment and financing. It didn't say how long
the curbs will last, and bankers expect tougher IPO vetting and a
lengthier registration process.
More than 650 companies are waiting to list on the Shanghai and Shenzhen
bourses, according to exchange data.
'CONTROLLING IPOs'
Companies in the pipeline for a market debut on the mainland include
robot maker JAKA Robotics Co, semiconductor firm Shenzhen Chipsbank
Technologies Co and Swiss agrichemicals and seeds group Syngenta, which
is eyeing a $9 billion IPO this year.
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Screens showing the Hang Seng stock
index and stock prices are seen outside Exchange Square, in Hong
Kong, China, August 18, 2023. REUTERS/Tyrone Siu/File Photo
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Bankers said that the regulatory move to slow the pace of IPOs goes
against Beijing's IPO reforms earlier this year, which sought to
remove government intervention and introduce a U.S.-style
registration-based IPO mechanism, among other things.
"It's going back to the old, myopic model of controlling IPOs to
lift stock prices," said a Shanghai-based investment banker, who
declined to be named as he is not authorized to talk to the media.
"It also shows China's registration-based IPO system is not
genuine," he said.
Even before the latest decision, bankers and lawyers were already
grappling with tougher-than-normal queries from stock exchanges over
companies' fundraising plans and refinancing projects.
"I think many IPO candidates would give up their IPO plans," the
banker said.
With China tightening scrutiny of companies eyeing offshore IPOs,
Hong Kong grappling with a liquidity shortage, and Sino-US tensions
clouding New York listing hopes, the latest move will leave Chinese
firms with very few equity fundraising options.
"Fundraising via equity is a good thing, better for many companies
as they can't raise debt so what purpose does this serve?" said
Fraser Howie, author of several books on China's financial system.
"These tweaks address symptoms such as the weak stock market, but do
nothing to sort the problem which is the economy."
(Reporting by Samuel Shen in Shanghai and Kane Wu in Hong Kong;
Writing by Scott Murdoch; Editing by Sumeet Chatterjee and Sharon
Singleton)
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