China to Relax and Speed Up IPO Review Process

China’s securities regulator is signaling an easing of profit requirements and an accelerated review process for initial public offerings (IPOs).

Such changes would be in line with the launch of China’s coming Nasdaq-style high-tech board, which adopts a registration-based IPO system that removes many regulatory hurdles and simplifies the lengthy approval process. When the CSRC revised a set of IPO guidelines last month, some of the new rules were similar to or even more relaxed than those being applied to listings the new board. 

The launch of the high-tech board will have a positive impact on the main board, helping to push the overall IPO vetting process to move toward a registration-based system, a senior investment banker told Caixin.

Fang Xinghai, vice chairman of the China Securities Regulatory Committee (CSRC), called recently for allowing listings of eligible companies with annual profits of less than 50 million yuan ($7.43 million).

Under current IPO rules, companies need to report profit of at least 30 million yuan in aggregate in the previous three years to be eligible for listing on the two main bourses in Shanghai and Shenzhen as well as the small and medium-sized enterprise (SME) board in the Shenzhen Stock Exchange. But there have been inexplicit, higher thresholds that applicants for main board listing must have net profits of at least 80 million yuan in the most recent year and at least 50 million yuan of annual profit for listing on the SME board, Caixin learned.

Fang said the regulator should also ease the requirements for continuous profits and no longer emphasize continuous growth.

Wang Jiyue, a veteran sponsor of Chinese IPOs, said the inexplicit thresholds have no legal basis. Rejecting listing applications of companies that meet the statutory requirements because they do not meet the inexplicit requirements is illegal and does not conform to the idea of governing the country according to law and the central government’s campaign to increase direct financing for companies to support the real economy, he said.

The regulator’s new stance shows its determination to move to the rule of law and marketization, Wang said.

In addition to profit requirements, the CSRC will also relax restrictions on the use of IPO proceeds. Fang called for less intervention in the use of raised funds by the CSRC’s Department of Public Offering Supervision. The Department of Public Offering Supervision should allow companies to decide how to use the money they raise, Fang said.

Fang also called for speeding up the IPO review process with a goal of approving at least four IPO applications a week, compared with 24 applicants approved during the first four months of this year.

As of April 18, 284 companies were waiting in line for IPO approval, according to the CSRC. The regulator has already sped up the vetting process since 2017, slashing the average approval time to about 15 months from more than three years previously, officials from the CSRC said.

Fang suggested the IPO review process should be more inclusive, making the composition of listed companies better reflect China’s overall economic, especially including more non-traditional manufacturing companies.

Contact editor Han Wei (weihan@caixin.com)