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China is unlikely to resume new share issues in the near term, as opinions are split on the planned new pricing system of initial public offerings (IPO) and market sentiment remains weak.
The listings approval committee of the China Securities Regulatory Commission (CSRC) has practically suspended review of new share offerings since the end of July.
And the CSRC formally announced a month later that no more IPOs would be allowed before the newly-drafted IPO pricing regulation took effect.
The news triggered a brief rally in the bourses as investors believed it would relieve the pressure of market expansion.
The draft of the regulation is still being discussed and amended.
According to the draft, firms launching IPOs will have to inquire about share prices among institutional investors and the final IPO price will be decided on the result of the inquiry.
Stock issuers and sponsors should also submit relevant reports to offer evaluation of the prices.
The new system, introduced from overseas markets, is supposed to give investors more say in the pricing process and better protect investors' interest by presenting to them more factual financial figures of the listing applicants. In the past, there have been complaints that many IPOs were overpriced and transparency was insufficient.
However, insiders said wide disparity still exists on the details of the new pricing system, which is part of the reason for the prolonged suspension of IPOs in the stock market.
The suspension is expected to last another several months.
"I think there should be more time for relevant parties to come to a consensus on the new share pricing system," said Dong Chen, an analyst with China Securities.
There are concerns that listing firms can still form allies with institutional investors to settle IPO prices under the table, which may erode the interests of small investors.
Moreover, the capability and creditability of some sponsors are also questioned, so it may still be hard to ascertain the real status of the listing applicants.
Disparity also exists on the exact method of new share purchase and arrangement of rights share issues in the secondary market.
Meanwhile, as the bourses remain bearish and investment sentiment is weak, it is not the time for regulators to resume new offerings, which would further dry out an already tight market fund supply, said Dong.
It is wise to hold on until sentiment further improves, he said.
CSRC has remained silent on the matter since the suspension of new share issues.
An investment banking official at a securities company in Beijing said some companies have been lining up for listing for months, but they can only wait until the door is open again.
It is generally predicted that this may take months, though no one is exactly sure how long that will be.
The market is also widely concerned about the reported arrest of Wang Xiaoshi, an executive at the Listing Regulatory Department of CSRC, who is alleged to be involved in a scandal of selling the names of the committee members that review listing applications.
The CSRC has made no comment on the matter so far, but the incident is believed to have triggered a reshuffle in the listing committee.
The present listing committee was established last December, formed of 25 people including officials, securities professionals and experts. Its structure was the result of a reform of the stock issuing and listing procedure at the time.
The CSRC has pledged to improve fairness and transparency of the review process.
Also, it has started to reveal, on its website, the names of participating members that vote on each share issue application.
Before that, the names were not published, and it has been disclosed in recent media reports that some companies would lobby to get the names first for "communication" at the time.
As the one-year-term of the listing committee members is to end soon, it is expected that a reshuffle will take place.
(China Daily November 22, 2004)
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