Regulations on Share Dumping, Refinancing Can Boost IPO Growth, CSRC Says
Xu Wei
/SOURCE : Yicai
Regulations on Share Dumping, Refinancing Can Boost IPO Growth, CSRC Says

(Yicai Global) July 27 -- The regulation of refinancing and share sales by shareholders of public companies can bring growth to the number of new initial public offerings, Li Gang, deputy director of the China Securities Regulatory Commission, said during state-owned broadcaster CCTV's Business Review news program yesterday.

The regulations allow the capital market to play a bigger role in supporting the development of the real economy, Li added, saying there is a tendency to equate IPOs with direct financing, but actually direct financing also includes equity and debt financing, public offerings and refinancing.

IPOs totaled more than CNY100 billion (USD14.9 billion) last year, while total volumes of refinancing and share dumping both exceeded CNY1 trillion.

Initial public offerings make up a relatively small proportion of direct financing, said Huang Hongyuan, general manager of the Shanghai Stock Exchange. Even if the number of IPOs doubles or triples, their overall value would still be significantly less than CNY1 trillion.

Tightened regulation has led to the amount of financing and share dumping falling. Since the introduction of the regulations in June, share sales have declined by 40 to 50 percent compared with the same period last year. Regulators will approve new IPOs in line with current market conditions.

The CSRC approves around 10 IPOs in each batch of applications. This represents a suitable pace for new stock listings and should be maintained going forward, said Wang Changqing, chairman of CSC Financial Co. [HKG:6066].

The commission will keep to a market-oriented approach regarding mergers and acquisitions, Li said. Some 90 percent of listed firms' M&As aren't subject to the commission's approval.

M&A transactions have now exceeded USD441.2 billion (CNY3 trillion) in China, making the country the second largest M&A market in the world. China's New Third Board stock market, the NEEQ, is a trading platform for shares in small-sized Chinese companies and currently has around 11,000 listed companies. It offers financing services beneficial to the real economy, especially micro-businesses and startups.

Mergers and acquisitions are an important mechanism through which stock exchanges can support the development of the real economy, Huang said.

The CSRC has consistently improved operations in recent years. As well as the 90% reduction in regulatory approvals required for M&A deals mentioned above, reviews have become stricter.

Listed companies can reduce overcapacity and excess inventory via mergers and acquisitions. Markets should support only legitimate transactions and illegal ones should be screened out, Huang said. Stock exchanges effectively protect investors by conducting thorough inquiries into the motives for proposed M&A deals.

China remains determined to push ahead with the dual-track reform of the domestic capital market, Li added.

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Keywords: CSRC , IPO , M&A , Regulator