China resumes initial public offerings on market recovery

China’s securities regulator said yesterday that it would allow the resumption of initial public offerings in China, lifting a suspension put into effect in July as regulators desperately tried to slow a devastating stock market crash.

China Securities Regulatory Commission (CSRC) spokesman Deng Ge made the announcement in Beijing.

The CSRC said that 28 companies which had seen their already-approved listings halted by the freeze would be the first out of the gate, adding that they have two weeks to prepare for the resumption, with the first batch of 10 companies launching after November 20.

The news comes amid signs that Chinese stock markets have finally stabilised after a rocky summer; this week the CSI300 index posted its best weekly performance since June.

Mainland stock indexes are up by more than 20% from the bottom of a crash struck in August, technically marking a return to a bull market.

“This is good news for the stock market in the mid- to long term, as it will introduce fresh cash, though it will also bring some psychological pressure to investors as they are afraid of diversion of the cash in the short-term,” said Xiao Shijun, analyst at Guodu Securities in Beijing.

The stock market crash over the summer was partly blamed on a spate of IPOs in a heavily leveraged market.

Companies in mainland China had raised $23.4bn in IPOs in 2015 through to mid-June before regulators suspended deals, far surpassing the $13.2bn in all of 2014, Thomson Reuters data showed.

At one point, the CSRC was letting 40 companies list every week and there were even more secondary issuances.

“I don’t think the resumption will cause a market stampede again,” said Xiao.

“In June, the fundamentals were distorted by high leverage, which does not quite exist in the current market after the regulator’s aggressive moves.”

Zhang Qi, analyst at Haitong Securities in Shanghai, said he expected retail investers to be sceptical of how much they will benefit from the resumption of IPOs, which were highly distorted by pricing restrictions.

“I am also expecting further changes to IPO rules, including to the quota for major stakeholders share of subscriptions,” he said.

The CSRC has said it would migrate away from its current approval system for IPOs to system in which companies merely register to list without requiring regulatory clearance.