China's IPO Pass Rate Hit Five-Year Low Last Year; Scrutiny to Stay Strict
Xu Wei
/SOURCE : yicai
China's IPO Pass Rate Hit Five-Year Low Last Year; Scrutiny to Stay Strict

(Yicai Global) Jan. 2 -- The pass rate of initial public offering assessments plunged to a five-year low in China last year and evaluations will also likely stay strict this year, China Securities Daily reported today.

The Issuance Examination Committee of China Securities Regulatory Commission reviewed 172 companies' IPO applications -- excluding cancellation reviews -- last year, approving 111 of these in a pass rate of 64.5 percent, statistics show, China Securities Daily reported today. The pass rate averaged 86.3 percent from 2014 to 2017.

The average financing amount of individual companies trebled last year as against 2017, though IPO reviews were in general strict, said Wang Bo, director of the research institute of Zhengzhou, Henan province-based Central China Securities.

The CRSC's Issuance Examination Committee mainly focused on IPO-seeking companies' relevant transactions, ongoing profitability, use of funds raised, horizontal competition, dependence on major customers, legality of business operations and financial compliance last year, Wang said. 

The committee also zoomed in on truthfulness of financial data disclosure, while lavishing more attention on such issues as horizontal competition and dependence on major customers than in 2017.

The main reasons enterprises failed their reviews were declining performance, abnormal gross profit margins and accounts receivable, while sustained profitability and financial problems were core concerns of the committee, said Sun Jinju, director of the Hong Kong-headquartered New Era Securities Research Institute.

This year's appraisals will also be exacting, Wang expects, to adapt to economic transformation and support emerging industries. The optimization of industrial ecological structure will continue, while evaluations will be expedited for innovative companies, and more firms will be delisted in a survival-of-the-fittest zero-sum game.

The mainboard IPO pass rate is projected to stay even with last year's, said Bian Yongzu, researcher at Chongyang Institute for Financial Studies with Beijing's prestigious Renmin University of China. 

The number of newly-listed companies on the main board may be lower than that of last year, however, with fewer companies waiting in the queue. 

More technology-based and new-economy firms will seek to list on the science and technology innovation board and it will take them less time to do so under its trial registration system.

Chinese President Xi Jinping said in his keynote speech to the first China International Import Expo in Shanghai on Nov. 5 that the Shanghai bourse will pioneer the new sci-tech innovation board for up-and-coming firms that do not qualify for the main exchanges, with the new trading vehicle to trial registration-based listings.

Editor: Ben Armour

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Keywords: IPO , CSRC