Caixin
Aug 24, 2021 08:18 PM
FINANCE

China Seeks to Quell Investors Ganging Up to Drive Down IPO Prices

Revised draft rules published by the Shanghai and Shenzhen stock exchanges seek to end practices that let bidders gang up and drive down IPO prices on the STAR Market and ChiNext. Photo: VCG
Revised draft rules published by the Shanghai and Shenzhen stock exchanges seek to end practices that let bidders gang up and drive down IPO prices on the STAR Market and ChiNext. Photo: VCG

Stock markets specializing in high-tech listings in China plan to introduce revised rules that aim to strike a better balance between IPO applicants and investors, seeking to end practices that let bidders gang up and drive down prices of new listings on Shanghai’s (link in Chinese) STAR Market and Shenzhen’s (link in Chinese) ChiNext board, the exchanges’ owners have said.

The draft revisions, published on Friday and available for public comment until Sept. 5, are a response to investors’ strategy of “ganging up” and quoting low prices when inquired about at what price they would like to purchase a new stock offering, industry insiders said. Specifically, the changes call for reducing the percentage of high bids that are automatically rejected in IPO pricing inquiries.

The investor strategy involves undercutting initial high bidders by crowds of investors working to offer lower price quotations that are almost or exactly the same in unison, taking advantage of existing rules in which at least the highest 10% of total IPO quotes should be rejected. The draft of the modified rules says no more than the highest 3% of the quotes shall be rejected, reducing the effectiveness of such bid tactics by expanding the range of prices, securities industry insiders told Caixin.

Compressing IPO quotations in the registration-based STAR Market and ChiNext board has been a recurring problem. In September 2020, material manufacturer Swancor Advanced Materials Co. Ltd. (688585.SH) planned to raise 216 million yuan ($31.7 million) from its STAR Market IPO (link in Chinese), but 6,903 accounts managed by 399 investors quoted the same price at 2.49 yuan (link in Chinese). The company ended up raising 108 million yuan at that price, giving it a market cap of 1.08 billion yuan, which reached the 1 billion yuan market value threshold for STAR Market IPOs.

Regulators are on the move. In September 2020, the Securities Association of China and the two exchanges asked institutional investors to conduct self-inspections to check whether their IPO quotations are compliant, knowledgeable sources said at the time. Since then, multiple investors have been punished for relevant misconduct.

ChiNext and the STAR Market are China’s Nasdaq-style boards for listing tech companies. As of Tuesday, a total of 329 companies are listed on the STAR Market, with a total market cap of 2 trillion yuan, while 1,013 companies are listed on the ChiNext board, which has a total market cap of 13 trillion yuan.

Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editor Lin Jinbing (jinbinglin@caixin.com)

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