Shock, horror: ‘irresponsible’ pricing in China IPOs | FT Alphaville

Shock, horror: ‘irresponsible’ pricing in China IPOs

Beijing’s regulators have injected a few more jitters into China’s nervy but always hyperactive stock markets – taking a swipe at “irresponsible” pricing of IPOs.

As the FT notes on Monday, the statement has fuelled speculation that Beijing could temporarily halt the new issue market in order to introduce fresh pricing rules.

Official media quoted Zhu Congjiu, an official of the China Securities Regulatory Commission, as saying institutions were “irresponsibly driving up” IPO prices. The remarks come amid an increasingly lackluster investor response to mainland IPOs.

Last week, China XD Electric became the first Chinese stock in five years to end its first day of trading below its IPO price. And several other recent large offerings have only seen single-digit, first-day percentage rises, while others have suffered declines in subsequent sessions.

Zhu, according to the official China Daily, told a seminar on IPO reform: “Some institutions are simply profit driven and are not responsible when proposing a price. This has helped drive up IPO prices.”

Last year Chinese equity raisings accounted for four of the top 10 offerings worldwide by size, and a whopping 45 per cent of global IPO volume – or a total $50.4bn worth of shares, according to Dealogic.

Now, the rumblings from Beijing’s regulators suggest the shine might be wearing thin very quickly in the great casino of China’s markets.

China equity analysts say that CSRC is planning to implement new IPO price setting and underwriting rules in an effort  to encourage “more rational pricing” of new offerings – and that approval of new IPOs could be suspended until those take effect.

Already, however, some analysts are saying the lukewarm take-up of recent mainland IPOs shows that investors, at least, are showing more “rationality”.

But China’s authorities are no strangers to the art of over-kill. And already, there are suggestions that Beijing will delay its long-awaited move to allow foreign companies to list on the mainland.

As the FT adds, a senior Shanghai government official was quoted at the weekend saying China was unlikely to allow foreign companies to list on the Shanghai stock exchange in the first half of this year.

That could have implications for HSBC and some other “red-chip” companies – mainland companies listed only in Hong Kong – that have been considering Shanghai listings.

If – as some believe – there is some truth to the Sunday Telegraph’s report about HSBC eyeing a big stake in one of China’s top three banks, a mainland listing is crucial for the British bank.

But such a move by HSBC would also require some hugely significant mainland reforms.  Currently, foreign investors are restricted to stakes of 20 per cent each and a combined 25 per cent for all foreign investors in Chinese banks.

For now, we can safely say that the politics of IPO activity in China’s mainland markets remain all about domestic companies and – increasingly – “rationality”  and “responsibility”.

Related links:
China IPO fears after CNC debut
– FT
Edward Chancellor: Speculators’ animal spirits – FTfm
China to dominate IPOs in 2010, analysts – ChinaBizNow
China eclipses US in IPOs – FT