Applicants must stick to 'obligations' listed in guidelines, says CSRC

China's top securities regulator on Tuesday denied rumors that it had halted taking IPO applications but stressed that applicants must conform to new rules before being considered.

The denial followed a report by the Shanghai-based Oriental Morning Post on Tuesday that quoted several anonymous investment bankers as saying that the China Securities Regulatory Commission had stopped taking new applications while preparing to implement new rules.

The CSRC denied the report in a statement posted on Sina Weibo, China's main micro-blogging service.

But the commission added that new applicants must stick to the "integrity obligations" stipulated in the new guidelines published Nov 30 for reforms moving the system away from an approval-based one and toward a US-style registration-based IPO system. Those whose applications have already been approved must make changes before moving through the approval process.

The CSRC vowed on Nov 30 to end a 14-month IPO hiatus and allow at least 50 companies to float shares by January next year.

More than 760 IPO candidates are now in the pipeline, and the CSRC said it will take almost a year to assess all them.

Also on Tuesday, the China Securities Journal reported that per the new rules, IPO candidates must update their filings before Dec 20 if they want to go public in January. The newspaper quoted an anonymous source as saying that the CSRC asked the sponsors to "guarantee the quality" of the candidates' paperwork.

Those who don't make the Dec 20 cut will have to do additional financial disclosures.

Under the registration-based system, widely used in developed countries, companies meeting basic requirements can register for a listing without having to get administrative approval, letting the market decide the company's value and earnings potential.

Analysts believe the changes promised by the guidelines will serve as a transition to the registration-based system. They are the first major regulatory changes to follow the ambitious, 60-point blueprint for reform released at the conclusion of last month's Third Plenary Session of the 18th Central Committee of the Communist Party of China.

The CSRC guidelines published Nov 30 require, among other things, that if major shareholders intend to sell their shares after the post-IPO two-year lock-up period, they must sell them at a price higher than the issuing price. Also, the two-year lock-up period will be extended by at least six months if a company's stock price drops lower than its issuing price for 20 consecutive trading days within the sixth month following the IPO.

"The changes enhance investor protection and information disclosure, and will eventually lead to a registration-based listing system," said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co Ltd.

The benchmark Shanghai Composite Index gained 0.69 percent to 2222.67 points on Tuesday, rebounding from a 0.59 percent decline Monday stemming from investor concern that IPO resumption would divert funds away from exiting stocks.

But a drop in money market rates on Tuesday helped take the index to a six-week high. The seven-day interbank lending rate, a gauge of funding availability in the system, fell 140 basis points to 4.60 percent as of 13:30 pm on Tuesday in Shanghai, according to the National Interbank Funding Center.

Hong Hao, a researcher at the securities and futures research center of the Central University of Finance and Economics, wrote in a column on Sina.com that the market will be under short-term pressure if IPOs are resumed.

But he said mid- to long-term, the market will benefit from the reforms.

The bubble-inflated ChiNext board will take a hit, he added, as investors flee to the main board in search of value.

The ChiNext Index rose 0.11 percent on Tuesday after plunging 8.3 percent on Monday, the biggest drop on record.

gaochangxin@chinadaily.com.cn

(China Daily USA 12/04/2013 page14)