Caixin
Sep 22, 2020 05:55 AM
FINANCE

STAR Market Warns Investors Against Collusion on IPO Pricing

Investors are suspected of offering concerted prices in subscribing for new IPO shares on Shanghai’s the STAR Market.
Investors are suspected of offering concerted prices in subscribing for new IPO shares on Shanghai’s the STAR Market.

China’s Nasdaq-style high tech stock market warned investors Monday against negotiating bid prices in their subscriptions to shares of initial public offerings (IPOs).

At a meeting of the public issuance self-discipline committee of the Shanghai Stock Exchange’s STAR Market, members said some investors were suspected of offering concerted prices in subscribing for new shares and said some lead underwriters failed to provide investment value research reports independently and prudently.

In the IPO of Swancor (Jiangsu) New Materials Co. Ltd., a producer of carbon fiber composite for wind power plants, the company originally planned to raise as much as 216 million yuan ($31.7 million), but eventually raised only 108 million yuan after setting the offering price last week at 2.49 yuan a share.

That IPO price implies a price-to-earnings ratio of 10.27, the lowest among IPOs on the STAR Market and significantly below the informal cap of 23 times earnings on Chinese mainland stock exchanges.

In the bidding process, nearly 7,000 investors offered 2.49 yuan per share. That so many institutional investors acted with such uniformity represents a new wrinkle in the IPO book-building market, a person at a leading brokerage said.

Investors have no time to study the valuation of issuers in a flurry of IPOs, with as many as 20 new offerings or more in a week, a veteran investment banker said. Especially with a little-known issuer, it’s normal for some intuitional investors to follow suit in bidding.

Investors usually bid for new offerings based on the investment value in analysis reports provided by IPO sponsors, but to increase their odds of winning, more and more investors have chosen to follow the lead of core institutions.

A number of mutual fund managers told Caixin reporters that they would privately inquire about the bidding prices from the core institutional investors and then offer the same prices.

The current IPO market is obviously a buyer’s market, with widespread collusive bidding suppressing IPO prices, said another person at a leading brokerage.

The self-discipline committee suggested that institutional investors conduct internal compliance management and commit to doing IPO business on the STAR Market in accordance with law.

The Shanghai Stock Exchange will resolutely take regulatory measures to deal with violations in the process of IPOs to protect the healthy and stable development of the STAR Market, the exchange said in its statement.

The Star Market, formally known as the Science and Technology Innovation Board, was launched last summer, months after President Xi Jinping initiated the idea in hopes of invigorating China’s capital market and luring more fast-growing companies to list at home rather than in New York or Hong Kong. The market adopted a registration-based IPO process, a more straightforward and shorter reviewing procedure than used elsewhere in Chinese mainland’s capital markets.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

Download our app to receive breaking news alerts and read the news on the go.

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code