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China boosts pace of IPOs, adding to supply as prices surge

Friday, April 24, 2015 - 07:38
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China's securities regulator is increasing the pace of initial public offerings, allowing more companies to take advantage of a world-beating rally that's sent the Shanghai Composite Index to a seven-year high.

[BEIJING] China's securities regulator is increasing the pace of initial public offerings, allowing more companies to take advantage of a world-beating rally that's sent the Shanghai Composite Index to a seven-year high.

The China Securities Regulatory Commission will review and approve two batches of IPO applications each month, up from one previously, it said on its official microblog. Twenty-five IPOs were approved on Thursday, the CSRC said.

Unlike counterparts in the US or Europe, China's securities regulator controls the timing and pricing of debut offerings. The agency is boosting new listing in its US$7.6 trillion stock market amid insatiable demand. All except one of the more than 140 offerings over the past year has surged the maximum 44 per cent allowed on their first trading day, according to data compiled by Bloomberg.

"The current market condition is benign for regulators to let more companies issue new shares," Jun Zhang, head of China Research at Rosenblatt Securities Inc. in San Francisco, said by phone. "The fast gains in Chinese equities have attracted a lot of capital and investors are scrambling for IPOs. The supply increase will help meet the demand." A seven-person listing review committee examines each IPO application, judging factors such as investment potential and profit sustainability.

The CSRC has approved 30 offerings for April, after 26 in March, 18 in February and 21 in January, Bloomberg data show.

The Shanghai Composite rose for a third day Thursday to 4,414.51, the highest level since March 2008. Chinese stocks are up 36 per cent this year after gaining 53 per cent in 2014, more than any other nation.

The People's Bank of China cut the required-reserve ratio for lenders by 1 per centage point this week, the most since the global financial crisis, as it seeks to stoke a cooling economy forecast to grow 7 per cent this year, the least since 1990.

IPOs have been surging after regulators put pressure on companies to keep offering prices low to protect individual investors. While policy makers have made no official announcements about a valuation ceiling, data compiled by Bloomberg show that virtually no companies in China are going public at prices of more than 23 times their earnings per share.

BLOOMBERG