Dissatisfaction at home spurs offshore IPO push

Illustration: Chen Xia/GT

Mainland market regulator should move to stem outbound listing tide

A seasonal year-end rush of IPOs by Chinese firms moved into high gear late last week, when media reported that top movie chain operator Wanda Cinema Line Co and social networking up-and-comer Momo Inc had taken major new steps in their listing plans. The pair would join nuclear plant builder CGN Power Co, Beijing-based automaker BAIC Motor and real estate developer Dalian Wanda Commercial Properties, which were also in the headlines last week, in a year-end fund-raising frenzy that could raise more than $10 billion.

And yet of those five mega-offerings, all but one are being made outside the Chinese mainland, including three in Hong Kong and one in New York. The mainland stock regulator should at least be commended for retaining the Wanda Cinema IPO, the only one of the five new listings slated to happen on an onshore stock market. But even that plan comes as sister company Dalian Wanda is opting for Hong Kong after years of frustration at seeing its applications repeatedly delayed for an onshore listing.

After a nascent stock market rally that saw the Shanghai Composite Index rise 10 percent in November, the mainland securities regulator should consider getting more aggressive about approving new IPOs in 2015. As part of that drive, it could boost the flow of high-quality offerings by giving preferential treatment to these better-run firms now making listings offshore.

Failure to do so will result in a continued stream of defections by leading Chinese firms to international markets, once again depriving local investors of a chance to share in the gains of some of the country's most promising companies.

This year saw a bumper crop of major new IPOs by Chinese firms in New York and Hong Kong fueled by a window of strong investor sentiment, culminating with the record-setting $25 billion listing by e-commerce giant Alibaba Group in September. But the situation was much quieter in Shenzhen and Shanghai, as China's securities regulator took a far more cautious approach after lifting a year-long IPO freeze that had been implemented to support a weak stock market.

A year-end rush in new offerings is relatively common for IPOs in the West, as companies race to list before a seasonally quiet period in the first quarter due to the Christmas and Chinese New Year holidays.

This year's rush picked up pace late last week when media reported that Wanda Cinema had just received approval from mainland securities regulators for a long-delayed IPO, with plans to raise up to 2 billion yuan ($326 million). At the same time, other reports said Momo had made a new filing in its plans for a New York IPO, giving an updated fund-raising target of $232 million.

Just a day earlier, media reported that CGN Power had begun taking share orders for a Hong Kong offering that could raise up to $3.1 billion, in a deal that was getting strong interest due to the company's status as China's first nuclear power company to go public.

Separate media reports said BAIC had received approval from the local securities regulator for a Hong Kong IPO to raise up to $1.5 billion, and planned to start marketing the deal this week. In the last of the five deals, Dalian Wanda, one of China's leading shopping mall developers, had reportedly scheduled a hearing for this week that could see it get regulatory approval for its own Hong Kong mega IPO plan to raise up to $6 billion.

All of these deals look quite attractive, involving some of China's most recognized and best managed firms that are leaders in their respective fields. The fact that four of the five chose overseas markets for their listings owes largely to the frustration that many firms are feeling toward mainland securities regulators, as most have waited at least two years - and sometimes much longer - for approval that never came for domestic IPOs.

The regulator's conservatism was due to the need for systemic reforms, as well as weaknesses that made mainland stock markets some of the world's worst performers over the last two years. But with many of the reforms now in place, and a nascent stock market rally in November, the regulator should seriously consider easing its conservative stance. It should also make special efforts to accommodate leading names like Wanda, in a bid to stop the steady exodus of top companies to offshore markets.