Firms drop IPO plans amid CSRC checks

More than 30 percent of companies lining up for initial public offerings (IPOs) decided to drop their applications during on-site inspections of their financial reports and information disclosure by the China Securities Regulatory Commission (CSRC). the CSRC said over the weekend.

The CSRC, which suspended approval of IPOs last October, started a comprehensive inspection program for IPO candidates' financial reporting last December, in an effort to ensure that the applicants were offering accurate and complete information for potential investors.

According to the CSRC, 622 companies offered self-compiled financial reports during the inspection process, but 268 of them later asked the CSRC to stop checking their reports.

The CSRC found that some companies had failed to post accurate information and had weak inner controls. It also found that certain firms had violated laws and regulations by fabricating deals and exaggerating their profits, the commission said.

According to the CSRC, companies that have seriously violated the rules, such as Henan Tianfon Energy-Saving Panel Science and Technology Co and Guangdong Qiu Sheng Resources Co, will face further checks.

Dong Dengxin, a professor of finance at Wuhan University of Science and Technology, told the Global Times Sunday that while some companies intend to mislead investors, others that began their applications years ago may have just failed to meet the updated requirements. These firms should not be punished and should still be eligible for IPO applications, Dong said.

The CSRC said it has "asked sponsor institutions to be more honest and take the responsibility to carry out the proper level of due diligence," although it didn't mention any specific investment banks, accounting firms or brokerages that have not met its requirements.

Zhu Lixu, an analyst with Xiangcai Securities, told the Global Times Sunday that sponsor institutions should be punished heavily if they are found to have helped IPO candidates report misleading information.

"The institutions' incentive to report wrong information should be removed, or they will always figure out a way to help unqualified companies go public, and the effects of only doing inspections on IPO candidates will be limited," he said.

The CSRC said Friday that it has started new probes into possible information disclosure violations by six listed companies, including beverage packaging firm Zhuhai Zhongfu Enterprise Co and Qingdao Evercontaining Electric Co.

The commission initiated 39 such investigations in September, 150 percent more than the average number of the first eight months, it said Friday.

Both Dong and Zhu said IPO approvals are likely to start again soon.

"The commission has done all it can do to ensure the quality of the applicants," Zhu said, and approvals should start again "in November or December this year, soon after the Third Plenary Session of the 18th Communist Party of China Central Committee in November."