Caixin
Feb 04, 2021 08:28 PM
FINANCE

Sponsors Face Tougher Inspections Over STAR Market IPO Problems

The Shanghai Stock Exchange aims to tighten supervision over new listings on the tech-heavy STAR Market, as the China Securities Regulatory Commission has asked the bourse to step up scrutiny over IPOs. Photo: VCG
The Shanghai Stock Exchange aims to tighten supervision over new listings on the tech-heavy STAR Market, as the China Securities Regulatory Commission has asked the bourse to step up scrutiny over IPOs. Photo: VCG

Sponsors for new listings on Shanghai’s tech board will face tough onsite supervision and inspection when regulators question the viability of candidates or the quality of their information disclosure, according to an official notice issued Wednesday.

The notice (link in Chinese), released by the Shanghai Stock Exchange, aims to tighten supervision over new listings on the tech-heavy STAR Market, as the China Securities Regulatory Commission (CSRC) has asked the bourse to step up IPO scrutiny in the wake of fintech giant Ant Group Co. Ltd.’s shocking listing suspension in November.

The exchange operator urged IPO sponsors and other intermediaries, such as legal and accounting firms, to fully fulfill their duties as gatekeepers to the capital market. Lately, the CSRC has repeatedly stressed the importance of improving information disclosure quality during IPOs in order to protect investors’ interests and head off risks to the financial system.

If sponsors fail to adequately explain lingering doubts over IPO applicants’ asset integrity, business independence, financial data or clarity around stakes held by controlling shareholders, the Shanghai bourse will conduct onsite supervision and inspection of the sponsors, the notice said.

The Shanghai exchange has conducted onsite supervision and inspection of 45 sponsors for IPOs on the STAR Market since June 2019, when the board launched, bourse data show. Among them, 37 sponsors withdrew IPO applications for their clients after onsite visits.

According to the notice, sponsors will face punishment if the exchange finds during inspection that they have failed in their duties to ensure clients disclose information accurately and completely when filing IPO applications.

Onsite inspection may involve interviewing employees of the sponsors, and checking their work materials. Such scrutiny by at least two regulators from the exchange is expected generally to take less than two weeks, the notice states.

The STAR Market uses a registration-based IPO system that is more market-oriented than older approval-based processes, relying, as it does, on fulsome disclosures to help investors evaluate listed companies.

Scrutiny has been stepped up in recent months, as the CSRC accused the Shanghai bourse of carrying out its review of Ant Group’s application too quickly in the wake of its IPO suspension, Caixin previously revealed.

One manager with an investment bank told Caixin recently that applicants were receiving far more inquiries from the Shanghai and Shenzhen stock exchanges and that the bourses were conducting more inspections. This stricter supervision had led some companies to abandon their IPO plans, he said.

 Read more  

Caixin Explains: What’s Behind Regulators’ Backpedaling on China’s New IPO System?

Contact reporter Tang Ziyi (ziyitang@caixin.com)

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