China’s IPOs drop in Q1 by 56% y-o-y, as nation steps up regulation to enhance quality of listed firms

stock market Photo:VCG

stock market Photo:VCG

The number of A-share IPOs has fallen significantly so far this year, with none available for subscription this week, and issue prices have become more reasonable, indicating a steady rise in market confidence as regulators move to enhance the quality of listed companies. 

Even though the IPO process may take longer, observers said that strengthened regulation will set a higher benchmark for the Chinese stock market, leading to sustainable development.

In the first quarter, 30 IPOs raised 23.6 billion yuan ($3.26 billion), with the number down 56 percent on a yearly basis and the funds raised reduced by 64 percent, according to a report released by Deloitte China on Monday, nbc.com reported. 

The report estimated that about 115 to 155 IPOs will be held in the A-share market this year, raising anywhere from 139 billion yuan to 166 billion yuan.

The decreased number of IPOs means that new issues are becoming rarer, prompting funds to become more active, Yang Delong, chief economist at the Shenzhen-based First Seafront Fund Management Co, told the Global Times on Tuesday. 

Since the beginning of this year, 31 new companies have been officially listed, with an average closing price of 104.94 percent on the first trading day. Just one new company closed at a discount on its first day, according to media reports.

The reduction in IPOs aims to balance the primary and secondary markets and help the market rebound, Yang said. 

The relatively limited number of IPOs is a temporary situation, as regulators are focusing primarily on stabilizing the market. The situation is beneficial for investors in the secondary market, as having too many IPOs would depress the broader market if demand doesn’t catch up, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Tuesday.

The China Securities Regulatory Commission (CSRC) is allocating more money to conduct more inspections and audits of companies seeking IPOs, with a targeted penetration ratio of at least 25 percent, the Shanghai Securities News reported on Monday.

In March, the CSRC issued four policy documents to enhance supervision and management of the capital market and prevent risks, vowing to promote the high-quality development of the stock market. Among the four documents, three were guidelines aimed at boosting supervision of IPOs, listed companies, brokers and public offering funds. The fourth was meant to enhance self-construction of the CSRC system.

Experts highlighted the issuance and landing of the documents as a vital step to enhance the quality of listed companies and further stabilize the capital market, as previously implemented measures have already shown an effect. 

The enhanced supervision of IPOs will elevate the quality of listed companies at the root, and promote the sustainable development of the stock market in the long run, Yang said.