Home' A Plus Magazine : July 2013 Contents Some obser vers say that the Mainland IPO is unlikely to suffer perma-
nent damage from the moratorium, given its strong emotional appeal. “Chi-
nese founders usually have a keen interest in IPOs for cultural reasons,”
says Ho at EY.
“By listing, the founder is propelled from obscurity to a public figure,
which brings prestige,” he adds. “ The public visibility a listing provides is
also good for business.”
GETTING TO GRIPS
WITH AILING IPOs
When the China Securities Regulatory Commission
brought initial public offerings in the Mainland to
a complete halt in October 2012, it vowed to get to
the bottom of the capital markets problems.
The review process began in December 2012,
when the CSRC issued its Circular on Properly
Conducting a Special Check on the 2012 Financial
Reports of IPO Companies.
Under the terms of the circular, the CSRC
told brokerages to review their client companies
seeking a stock listing. The scrutiny prompted
the withdrawal of at least 268 companies from
the IPO process in the first quarter of 2013. Of the
remainder, the CSRC selected 30 companies to
inspect. This process continues.
On 7 June, the CSRC published a consultation
draft for IPO reform on its website. Major
proposals include allowing an approved issuer
up to 12 months to launch the IPO (instead of the
current six months) – this puts the timing of an
issue more in the hands of the company founders
and their bankers, who are presumed to be
able to read the market better than bureaucratic
Another proposal calls for controlling
shareholders to promise in the IPO prospectus
that after a two-year lock-up, the price at which
they will sell their shares should not be lower than
the issuing price.
A third, related, proposal calls for the lock-up
period to be automatically extended by another
six months if the average trading price, in the first
six months of listing, is lower than the issuing
price. The idea is to prevent large shareholders
from dumping stock at a profit for them but at a
price below what minority shareholders paid.
A further proposal would give formal
administrative underpinning to the punishment
of intermediaries, such as banks and brokerages,
which engage in market manipulation to drive up
the price of an IPO.
However, some market observers think the
proposals fail to address a core issue: reducing the
CSRC’s unnecessarily tight control of listings and
letting the market set some parameters naturally,
such as IPO timings. The proposed reforms,
analysts also note, have been announced with
little input from market participants.
July 2013 19
“By listing, the founder is propelled
from obscurity to a public figure,
which brings prestige... The public
visibility a listing provides is also
good for business.”
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