SHANGHAI: Chinese companies will resume initial public offerings (IPOs) with a bang next week, when an industrial explosives maker becomes the first to offer shares to investors following a four-month freeze.
China’s IPO rules systematically undervalue companies coming to the market, offering near-guaranteed profits to those lucky or well-connected enough to be allocated shares.
This heightens volatility as investors sell holdings to raise money for applications.
The China Securities Regulatory Commission (CSRC) froze IPOs in July as part of efforts to slow a market rout. But exchanges have since become more stable and it announced their resumption after last Friday’s close.
Kailong Chemical, which makes explosives for mining among other products, will be the first of 10 firms selling stock over three days next week, separate company statements said Monday.
A total of 28 companies were caught in the freeze and the remaining 18 will list before year-end, the CSRC has said.
The long-expected resumption has received mixed reviews, with some analysts saying it showed confidence while others worried about renewed price falls in the existing market.
“People are worried that the IPOs will drain funds from the market in the short term,” Zhang Yanbing, an analyst at Zheshang Securities, told Agence France-Presse.
The CSRC has said it will end the requirement for share subscriptions to be paid in advance, replacing it with a system where only successful investors have to pay up.
The move should reduce IPO-related volatility but will only take effect after the 28 companies already in the pipeline are listed.
It is seen as a step towards a market-based system under which investors, companies and underwriters determine the pricing and size of share issues, instead of the government regulator.
The companies offering stock for Shanghai listing include publisher Duzhe, known for its flagship magazine. Kailong Chemical will list in Shenzhen, along with Thunder Software Technology which will trade on the exchange’s ChiNext board for hi-tech companies.