Chinese firms leapfrogging IPO gridlock

Hong Kong

CHINESE companies looking to jump a massive queue of firms seeking to do initial public offerings (IPOs) and start trading their shares on the Shanghai or Shenzhen markets are increasingly going through the backdoor by taking control of companies that already have coveted listing status.

The fashion for so-called reverse takeovers (RTOs) is seeing some unlikely combinations, such as a mobile game developer getting listed through a shoe company and a pharmaceutical distributor tying up with a brewer. In such deals, a listed company buys a bigger privately held company through a share exchange that gives the private company's shareholders control of the merged entity.

Companies in the IPO queue, and those advising them, had hoped China would shift to a faster registration-based system for stockmarket flotations from the current approval regime this March. But the new securities regulator said it would take time to draft the new rules, leaving 762 companies lined up seeking IPOs and many of them concerned that the process…