China regulators likely to allow a wave of share offerings in 2015

[SHANGHAI] China is expected to allow significantly more companies to list on its stock exchanges this year, with some analysts predicting proceeds from initial public offerings will nearly double to US$20 billion.

Anticipation of a busier IPO pipeline stems from the belief that the market's recent rally has reduced concern among regulators that an increase in supply could spook investors.

The China Securities Regulatory Commission (CSRC) said late on Monday it had approved listings by 20 firms - about twice the average monthly average last year - underscoring its desire to throw open the IPO market. "It makes sense for them right now - given how fast the market's gone up - to actually suck up some of the liquidity with the new IPOs," said Francis Cheung, head of China equity strategy at CLSA in Hong Kong. "They need to balance. I don't think they want to crash the market," he said.

The stock market, which rallied over 40 percent in the fourth quarter of 2014, fell on Tuesday and rose marginally on Wednesday. It was the best performing major market in 2014, rising to its highest levels in close to five years.

Around 650 companies are currently waiting to list, with most of them in the queue since before late 2012 when CSRC froze all IPO approvals for over an year as it overhauled the market. Many unlisted small and mid-sized firms have been struggling to find sources of funds outside of China's overburdened banking system.

Analysts at Deloitte estimate between 180-200 mainland companies will raise between 100 billion yuan and 120 billion yuan (US$16.1 billion to US$19.3 billion) via IPOs this year. Manufacturing, consumer and retail and emerging industries will dominate the offerings, they said.

PriceWaterhouseCoopers forecasts China's IPO market in 2015 could be even bigger, raising around 130 billion yuan.

Last year, 125 companies raised a total of US$11.2 billion, with technology firms accounting for about 47 per cent of all proceeds, according to Thomson Reuters data.

Unlike many developed markets, China applies an approval-based system in which the regulator decides which firms would get to list and when.

But the CSRC has said it will be moving to a registration-based system similar to those used in the United States and other developed markets as part of broader efforts in opening up its financial system.

The new system, which analysts expect could be rolled out this year, aims to allow market forces to determine the reception and pricing of IPOs and speed up the process for the long line of hopefuls.

Zhang Gang, an analyst at Central China Securities in Shanghai, said he believes the system will be rolled out in the second half of this year. Its introduction could briefly cause volatility in the market, he said.

For years prior to late 2014, mainland stock markets stayed in the doldrums. But spurred by a surprise interest rate cut in November and the launch of a stock link between Shanghai and Hong Kong stock exchanges, they have been on a tear.

The CSI300 index of top Chinese companies rose 44 per cent during the fourth quarter in what some analysts dubbed a"crazed bull run". It ended the year up 52 per cent.

REUTERS