New IPO rules better than nothing: expert

The ongoing campaign to tighten initial public offering (IPO) approval procedures is not perfect but is better than nothing, Liu Shengjun, a prominent advocate for stock market reform, told the Global Times Monday, after seven more enterprises canceled their applications last week.

The seven firms included six applicants for the growth enterprise market (GEM) in Shenzhen, according to a document published Friday on the website of the China Securities Regulatory Commission (CSRC).

The other dropout was Wuhan-based Sevalo Construction Machinery Group Co, which applied for an IPO on the main board in Shenzhen, another CSRC document showed.

"The tightened procedures cannot truly eradicate the root of the problems in the Chinese stock market," said Liu, who is the deputy director of the CEIBS Lujiazui International Finance Research Center in Shanghai. "However, it's better than nothing" in terms of improving the quality of listed companies.

According to the CSRC documents, as of Thursday, a total of 986 companies are still waiting for approval to get listed in the A-share market, including the GEM. And in 2012, only 176 companies passed the regulatory review procedure, according to statistics from market information provider Zhejiang Hithink Flush Information Network.

In December 2012, the CSRC issued an order requiring the IPO intermediaries to carry out self-reviews to improve their underwriting quality and ensure the veracity of the applicants' financial statements. Brokerage firms must all file self-review reports to the regulator by March 31, or their clients' applications will be terminated automatically.

The CSRC also said it would conduct sample checks on the brokerages' self-review process, which has caused jitters in investment banking circles.

The campaign aims to scare off some of the companies that are awaiting approval, and at the same time the CSRC is seeking to consolidate its own authority over IPO approvals, said Liu.

One downside of the campaign is that some of the firms that will survive it will be those who are able to pay more for lobbying, even bribing, the officials in charge of approvals, Liu noted.

The enterprises that have canceled their applications are mostly those whose performance got worse in 2012 and would probably fail to meet the requirements for going public, an analyst at Wuhan-based Changjiang Securities, told the Global Times Monday on condition of anonymity.

More companies have pulled out of applying for the startup board because their businesses are more volatile than applicants for the main board, whose revenues are more stable thanks to their larger size, the analyst said.

Since the beginning of the year, 11 GEM applicants have canceled their listing plans, and four have pulled out of applying for the main board, according to the CSRC.

Fujian Anxi Tieguanyin Group Co, a major oolong tea producer, said Monday that it would continue to seek an IPO in future, even though it backed down from an application to the Shenzhen Stock Exchange on January 7.