First batch of IPOs under new China listings rules surge on debut
Shares in 10 Chinese companies soared almost 100 per cent on average on Monday, as the first batch of initial public offerings under a new streamlined listings regime debuted in Shanghai and Shenzhen.
The top gainers among the new launches included Shenzhen CECport Technologies, an electronics distributor, whose shares ended trading up more than 220 per cent, and Shaanxi Energy Investment, a state-owned electricity group that raised Rmb7.2bn ($1.1bn) from its IPO and whose stock rose about 48 per cent. The average gain across the 10 new listings was more than 96 per cent.
But financial experts said the massive price gains recorded by the new listings pointed to the need for more comprehensive reforms to China’s equity fundraising rules.
“The fact that you have these ridiculous jumps on Day One clearly means companies are being undersold,” said Fraser Howie, an independent analyst and expert on China’s financial system. “This is still a process where there is tremendous [state] oversight and control.”
The new rules aim to streamline IPOs by allowing Chinese companies to debut on the main boards of the Shanghai and Shenzhen stock exchanges without first gaining regulatory approval. They also remove a limit that had capped the IPO price of a company’s stock at 23 times earnings per share and abolish a 44 per cent ceiling on first-day gains, although daily moves will be capped at 10 per cent after the first five sessions.
The latest listings reforms come with China already being the world’s most active market for IPO fundraising, with more than $14.5bn raised in the year to date, or more than four times the total on Wall Street, according to data from Dealogic.
Yi Huiman, chair of the China Securities Regulatory Commission, said at a Monday morning listings ceremony that the reforms represented “comprehensive and fundamental change” and that the first batch of IPOs was “another important milestone in the reform and development of China’s capital markets”.
However, the reforms to remove regulatory approvals and share price caps on the main boards of mainland stock exchanges — known collectively as a “registration-based listings system” — had already been rolled out since 2019 on China’s tech-focused boards, the Star Market in Shanghai and ChiNext in Shenzhen.
A surge in activity on these two boards over recent years reflects a push by policymakers to funnel IPO proceeds to sectors perceived as vital to national security and economic growth. Shanghai mayor Gong Zheng said on Monday that the new regulatory system would “forcefully push” China’s stock market towards better providing capital to priority sectors, as the Star and ChiNext boards already did.
Despite the removal of a formal requirement to obtain listings approval from the CSRC, local brokers say regulators still exert a powerful influence over which companies are granted access to Chinese capital markets. Earlier this year, the securities regulator told bankers it had identified several “red light” industries that should not be allowed to carry out equity fundraising on the main boards in Shanghai and Shenzhen.
Analysts said the triple-digit gains by the companies listing on Monday were likely to be unsustainable.
“It’s the same trading pattern seen with the launch of Star in Shanghai and ChiNext,” said Zhang Qi, an analyst at the Chinese brokerage Haitong Securities. Zhang said traders had bid up shares in the new listings on speculation that the companies enjoyed support from policymakers and that they “would go back to a more rational level after their debut”.