IPO changes 'will help small investors'

Investors discuss market trends at a securities house in Fuyang, Anhui province. So far this year,48 Chinese companies have listed on the A-share market, raising 22.4 billion yuan. Lu Qijian / for China Daily

Steps taken by the China Securities Regulatory Commission to improve the initial public offering system are expected to protect the interests of small and medium-sized investors, but the IPO pricing system should be more market-oriented, experts said.

The number of shares sold by existing shareholders should be less than the number offered to investors who will hold them for at least 12 months, the CSRC said on Friday.

"The system of share transfers from existing shareholders has some deficiencies. The measures will protect the interests of new shareholders," said Hong Hao, managing director and chief strategist at BOCOM International Holdings Co Ltd.

"The commission took these steps to optimize the transfer system, which can combine the 'invisible hand' of the market with the 'visible' hand of the regulator," said Liu Jipeng, a professor at the China University of Political Science and Law.

The CSRC released a reform plan covering IPOs at the end of November that allows some shares from existing shareholders to be transferred, raising the proportion of tradable shares in a company.

But problems have emerged in the process, such as that involving Jiangsu Aosaikang Pharmaceutical Co Ltd.

On Jan 9, it announced plans to issue 55.466 million shares at 72.99 yuan ($12.07) each, with 78.6 percent of the shares to be transferred from existing shareholders. The IPO was halted the next day.

Zhang Xiaojun, a spokesman for the CSRC, said that proportion was "too high" and not in line with the purpose of an IPO.

Another step taken by the CSRC last Friday was intended to further meet the requirement of small and medium-sized investors.

Under that rule, if the amount of shares subscribed by online investors is higher than 150 times the original online placement quota, at least 90 percent of the entire IPO should be sold online.

So far this year, 48 Chinese companies have listed on the A-share market, raising 22.4 billion yuan.

The average IPO price-earnings ratio of those companies was 29. Among these, 39 transferred shares from existing shareholders.

"The reform plan is significant for China's stock market in the long run. The measures should be refined and errors should be corrected in the implementation process," Hong said.

"But the IPO pricing should be more market-oriented," Hong added.

He said that only referring to the average industry P/E ratio doesn't fully explain a company's true value - IPO pricing should be decided by the market.

On Jan 12, the CSRC announced a rule saying that if a company's IPO P/E ratio is higher than the industry average, the company must warn retail investors of this fact and delay opening subscriptions by three weeks.

"The current IPO pricing is inflexible because there are not many listed companies in the A-share market and good ones should get high valuations," said Zhang Bo, a senior vice-president at Northeast Securities Co Ltd.