Jan 10, 2013 05:54 PM

Tighter Scrutiny of IPO Hopefuls 'Meant to Cut Backlog'

(Beijing) – Employees of securities firms are concerned by the regulator's intention to tighten reviews of initial public offerings, and two said the move is designed to reduce the number of listing applicants because there were too many.

All of the 882 companies waiting for China Securities Regulatory Commission (CSRC) approval to go public have been required to submit their financials for 2012 by the end of March. The regulator said it would check the results at randomly chosen firms to prevent fraud.

Companies aiming to list on Shenzhen's ChiNext board are facing the most pressure because they are required to withdraw applications if their financials for the past year failed to meet listing requirements.

A source from Everbright Securities estimated that about one-third of ChiNext board hopefuls may be affected. In the past, those companies would have been given a grace period that saw their applications suspended until performance recovered, he said.

The change was administrative interference by the regulator to reduce the number of companies it needs to review for IPOs, which has built up to a record high, he said.

Another source from a securities underwriter agreed, saying the move was a veiled attempt by the CSRC to compel companies to withdrawing their listing requests.

Besides imposing tougher requirements, he said, the commission is probably not going to look the other way with even minor problems as it often has in the past.

Complaints are emerging about the details of the regulator's planned reviews. Conference minutes from a meeting on January 8 show that CSRC officials intend to even use so-called mind-reading techniques to decide whether an interviewee was telling the truth.

Securities firms were also largely left on their own to determine whether to pull back an application if they cannot get all materials in place in time or risk being punished by the regulator.

One investment banker from CITIC Securities said he was also concerned about selective enforcement against small private enterprises.

"Large state-owned enterprises would be subject to rigorous checks on financials as well, but they may stand a better chance of passing the review," he said.

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