SHANGHAI, Feb 3 (Reuters) - China's move this week to
streamline stock market listing rules is unlikely to result in a
flood of initial public offerings, bankers say, citing the
prospect of state intervention on national security and other
grounds that would result in delays.
Beijing published draft rules on Wednesday to broaden its
fledgling registration-based IPO system, expand the U.S.-style
mechanism to all corners of China's stock market in a shift
designed to speed up listings and corporate fundraising.
Under the new system, China's stock exchanges will
themselves vet IPOs with a focus on information disclosure.
Currently, IPOs on China's blue-chip boards need clearance from
the China Securities Regulatory Commission (CSRC) under an
approval-based system - one that means long delays and IPO
prices capped by the regulators.
The reform was hailed by state media and analysts as a key
milestone that would make China's IPO market more inclusive,
transparent and efficient.
But in reality, bankers say, the IPO process will largely
remain at the mercy of authorities, who view stock markets as a
tool in a global power struggle and in national rejuvenation:
under the new rules, the CRSC's stated role will be to make sure
listings are in line with Beijing's broad industrial policy.
"Under China's mechanism, the government dictates the
direction of IPOs. Applicants are screened based on national
policies," said Terence Lin, partner of TRSD Capital, a boutique
investment bank that helps Chinese companies list in the United
States.
More than 30 IPO hopefuls have halted the CSRC registration
process, according to public filings, while hundreds have
aborted listing plans during the gruelling vetting process by
the exchanges in the pilot registration-based scheme.
A banker at a major Chinese brokerage, who declined to be
named as he was not authorised to speak to the media, said
China's IPO system, though registration-based in form, still
requires government approval in essence.
"If a company is neither big enough, nor innovative enough,
listing domestically is quite impossible (to get approval)," he
said. "Paternalism and politics continue to play a big role" in
the new IPO system, he said.
STAR SYSTEM
The registration-based IPO system was first adopted by
Shanghai's STAR Market when the tech-focused board was launched
in 2019. Endorsed by President Xi Jinping, STAR was designed to
fund tech independence amid escalating tension with the United
States.
The new IPO system was later rolled out to the start-up
board ChiNext, and the Beijing Stock Exchange. On Wednesday, the
CSRC said the reform will be expanded to the main boards in
Shanghai and Shenzhen - home to multi-billion dollar blue-chip
China stocks like Kweichow Moutai and Bank of China .
On Thursday, the CSRC made its role explicit. It said that
it would strengthen the Chinese Communist Party's leadership in
capital markets, vowing to combine market forces with government
roles as it mobilises the IPO reform.
"This means the CSRC still has the final power in deciding
whether the listing hopeful is in the appropriate sector," said
Yi Jiansheng, capital markets lawyer at Jia Yuan Law Offices,
writing in a research note on Thursday.
The most glaring example of state intervention even in the
registration-based system is the scuppering of Ant Group's
planned $37 billion IPO dual-listing in Shanghai and Hong Kong
just days before of its scheduled listing in late 2020, bankers
say.
"We thought the registration-based IPO mechanism would allow
more types of companies to list, and give the market more
power," said another banker at a Chinese brokerage, declining to
be named as he was not authorised to speak to the media.
"But as IPO sponsors, we feel on the ground that companies
face tighter and tighter regulatory scrutiny, which defies the
original purpose of the reform."
(Reporting by Shanghai newsroom; Editing by Sumeet Chatterjee
and Kenneth Maxwell)
Messaging: samuel.shen.thomsonreuters.com@reuters.net))
