China’s registration-based IPO system in effect

China’s new IPO system came into effect on Friday as the China Securities Regulatory Commission announced detailed rules and regulations.

Photo from CFP

Photo from CFP

By CHEN Jing


Financial institutions, including exchanges, the securities finance corporation and the securities association, have welcomed China’s new registration-based IPO system as a major step forward in regulating public offerings.

The China Securities Regulatory Commission (CRSC) expects direct financing to improve sectors in need of funding. It’s hoped the registration-based system would direct capital to industrial sectors in need of funding support, thus helping boost the recovery and growth of China’s economy.

Reform began in 2013 and the following decade saw its adoption in Shanghai’s STAR market, Shenzhen’s ChiNext board and the Beijing Stock Exchange. The 165 new rules cover listing, registration, underwriting, asset restructuring, regulatory enforcement and investor protection.

In evaluating an IPO application, the CSRC assesses whether the candidate meets national industrial policies and sector positioning while stock exchanges report to CSRC any discovered major sensitive issues, precedent cases, public opinions, violations, etc. CSRC has also dismissed the committees for reviewing IPO applications and public companies’ M&A and restructuring cases.

In underwriting, administrative limitations on the offer prices and size have been scrapped.

Asset restructuring by public companies, such as secondary offerings and asset acquisitions, is also registration-based.

More emphasis is given to regulatory enforcement and investor protection. The share repurchase system is to be refined and reinforced. For small and medium businesses on the New Third Board, the National Equities Exchange and Quotations (NEEQ) will follow the general principles established by the CSRC.

The registration system has advantages over approval. The reduction of hurdles improves efficiency, transparency and predictability. By only requiring essential details, the system will benefit companies, agencies and venture capital firms.

A typical IPO on the STAR board includes a self-evaluation, financial and legal compliance reviews by accountants and lawyers, and underwriting. The information disclosure mechanism provides increased accountability.

As a key step toward more direct financing, the new IPO system has pleased investment banks, confident of improvement to the market economy with more cash entering the real economy.

The national market is now ready to build the desired multi-layered capital system focused on capability rather than the short-term, with more options in selecting the most suitable board for listing.

“In evaluating companies, registration-based IPOs focus on value, growth potential and technological edge, rather than size and profitability,” said YUAN Yuyu of Medprin Regenerative Medical Technologies.

“This is a great opportunity for R&D companies. Medprin’s listing on the ChiNEXT board is attributable to the registration-based system.

“The system has boosted the enthusiasm of primary investors in innovation enterprises, especially the biopharmaceutical industry. It has vitalized the PE and VC industries. I think it will heighten initiative, creativity and capital utilization in the technology industry.”

The move comes at the beginning of what could be a fruitful year for investment banking. The China International Capital Corporation (CIIC) believes an increasing number of public companies, means more IPO revenue and new services.

Goldman Sachs’ manager SUO Lihui sees a strategic moment for investment banking with challenges in selecting projects and discovering valuable enterprises.

Securities companies are going to need to improve their valuations, pricing, research and marketing. That means high-quality interdisciplinary talent who understand industry and technology, and have a financial background, Suo said.

CICC acknowledges that the system puts higher demands on underwriters and is determined to take initiative in serving the national strategy.

The market is eagerly anticipating a wave of IPOs,