24 April 2013
The process of listing a Chinese company on their stock markets remains suspended, a situation dictated by the anaemic condition of the Shanghai and Shenzhen markets. Since August 2012, there haven’t been any new applications, nor IPOs.
The suspension has left a pipeline of 800 companies waiting to list. Nobody knows their exact position on the list, but it is apparent that certain sectors, such as property and industries that either pollute, or use high amounts of energy, rank below sectors such as high-tech or local consumption. Not that it makes much difference, as nobody right now gets to list and raise money.
In December 2012, the authorities sought to reduce the length of the list by getting tough on due dligence. They said they needed to re-check information, to ensure that companies still qualified, and that teams would be despatched to verify claims in certain cases. If errors were found that would be construed as fraudulent. The process, designed to scare off companies, resulted in a much smaller attrition rate than expected. There are still 630 companies on the list. If they listed at one a day, it would take two years just to clear the back-log, not counting the firms which still are under preparation for listing and may join the list.
“They should consider using the Hong Kong method,” says Lewis Wan, Chairman and CIO of the Pride Group. “Whatever the market conditions are, it should be open to IPOs, so that if firms really want to list, and are prepared to accept a lower price, they can go ahead, and set their own timetable.”
With the IPO market bunged up, he points out this puts a lot of pressure on entrepreneurs, who have shaped up their firms for listing, and proven years of positive returns. To stay on the list, they need to continue to show suitability and profitability, even if in cyclical industries where reduced profit and sometimes losses are just a by-product of normal business. As mentioned, the Government is getting tough on fact-checking, but even after the fact check, there is still no IPO, and merely adhering to the requirements might impel businesses into massaging their accounts to show healthy returns.
“IPOs can’t even list overseas,” he says. “They could apply to do so if they had ‘red chip’ status with an offshore holding structure, but now you can’t just set up a red chip just for the purposes of an IPO. That method has been shut since 2006.