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FINANCE

Window of Opportunity Narrows for Mainland IPOs

By Zhu Liangtao and Dong Tongjian
The China Securities Regulatory Commission cited suspected financial-data distortion and “unfair” transactions with connected parties in its rejection on Tuesday of five requests for initial public offerings. Above, the Shanghai Stock Exchange trading floor is seen in January 2015. Photo: Visual China
The China Securities Regulatory Commission cited suspected financial-data distortion and “unfair” transactions with connected parties in its rejection on Tuesday of five requests for initial public offerings. Above, the Shanghai Stock Exchange trading floor is seen in January 2015. Photo: Visual China

Only one of six new-listing applications was approved by the securities regulator on Tuesday, fueling speculations that the initial public offering (IPO) floodgate might be closing.

The China Securities Regulatory Commission (CSRC) has given the green light to fewer listing applications following a reshuffling of its stock issuance approval committee in late September. Investment bankers have told Caixin that the panelists might be more prudent because they are new to the role, and they are working amid investigations into allegations of bribery of previous panelists.

In a statement Tuesday, the CSRC said it approved the IPO plan of Suzhou Chunqiu Electronic Tech Co. Ltd., a maker of molding product. Five others — Guojin Gold Co. Ltd., Tap4Fun, Yunnan Shennong Agricultural Industry Group Co. Ltd., Shandong Fiberglass Group Co. Ltd., and Shanghai Golden Union Business Management Co. Ltd. — were all rejected, the CSRC said, citing suspected financial-data distortion and “unfair” transactions with connected parties.

The approval rate, therefore, was only 44%, down from 64% in the previous committee meeting in late October. During the first half, the approval rate was 85%.

There is a huge backlog of IPO applicants, with 560 companies on the waiting list as of Oct. 27, according to CSRC data.

Unlike in many developed economies, companies in China require regulatory approval for an IPO at the country’s mainland stock exchanges, in Shanghai and Shenzhen.

In late September, the CSRC review committee was expanded to 66 representatives, up from 60, with 34 of its members coming from within the CSRC. New members include securities lawyers, brokers and regulators from various parts of the securities sector.

“It certainly takes time for new committee members to get familiar with the review process and criteria, and it may result in a more prudent approach,” said an investment banker from a midsize brokerage.

Late last month, Caixin learned that a few CSRC officials who reviewed and approved of Leshi Internet Information & Technology Corp.’s 730-million-yuan ($110.0 million) IPO plan in 2010 are now being investigated by judicial authorities.

“The IPO reviewing board members seems more cautious after the investigation broke out,” an employee of a securities firm said.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)

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