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China unveils curbs on secondary share sales as IPOs speed up
[BEIJING] China's securities regulator announced new curbs on how much and often the country's public companies can issue new shares, amid concerns that a faster pace of initial public offerings will drag down the stock market.
The number of shares issued in private placements can't be more than 20 per cent of a company's total shares, the China Securities Regulatory Commission said in its weekly press briefing in Beijing on Friday. Non-financial companies seeking a share sale shouldn't have a large balance of longer-term financial investments such as assets for trading or funds lent to others, the CSRC said, though it didn't provide more details. The announcement confirms a Bloomberg News report on Thursday.
The CSRC's move to more closely supervise stock market refinancings, which in the past year raised six times as much money as new listings, comes as it speeds up approval of initial public offerings. The regulator last month said it would take steps to control public companies from frequently refinancing or raising too much at one time.
Ken Chen, a Shanghai-based analyst with KGI Securities Co., said before the announcement that the move would help free up liquidity for IPOs.
"The cooling in economic growth and rising interest rates are making IPOs a very attractive financing channel for companies," he said.
"The market would be under too much liquidity pressure if secondary share sales go at the current speed and scale."
The CSRC also said that all board decisions on additional share issues need to be "in principle" no earlier than 18 months after capital raised from the last sale is in place. Sales of convertible debt, preferred shares and so-called small and quick financings on the ChiNext market are not affected.
More than 600 companies are seeking approval for first-time share sales, Fang Xinghai, vice chairman of the CSRC, said during a panel discussion at the World Economic Forum in Davos, Switzerland, last month.
"Reform of our capital market still falls short," Mr Fang said.
"Should our reform be more successful, we wouldn't have had such a long IPO backlog and our contribution to the Chinese economy would be bigger."
The regulator approved 45 IPOs in December, the most since 1997. Such activity has led to rising concerns of a supply glut in the world's second-biggest stock market. A rush of new listings could drain demand, as investors chase the 44 per cent first-day gains, the maximum allowed under China's trading rules and the amount by which many IPOs jump in their debuts.
Read about the coming flood of China IPOs here.
There have been 295 IPOs in China's A-share market since Feb 20, 2016, when Liu Shiyu became CSRC chairman, according to data compiled by Bloomberg. The companies raised 178.5 billion yuan (S$36.887 billion) in total, the data show.
Chinese companies raised US$162.6 billion through more than 500 additional share offerings over the past 12 months, according to data compiled by Bloomberg tracking completed sales. Firms raised US$18.3 billion in January, the most since September, the data show.
The changes will affect market practice where companies prefer small public offerings for faster regulatory approval, and then move to private placements once listed, said Eric Liu, a partner at Linklaters LLP in Beijing.