The China Securities Regulatory Commission (CSRC) is stepping up scrutiny of companies seeking to conduct initial public offerings.
The goal is to stimulate secondary markets and slow the pace of new fundraising. Regulatory measures such as the confiscation of mobile phones and laptops belonging to top executives have led more companies to withdraw their IPO applications.
In April, the CSRC announced it would conduct on-site reviews of 20% of initial public offering applicants in 2024, four times the target from last year. The watchdog, which tightened the rules in March, reportedly wants to ensure that only top-tier firms (those favored by the Beijing government) can access the country’s capital markets.
The country’s largest exchanges in Shenzhen and Shanghai have not accepted any IPO applications this year.
More than 130 Chinese IPO candidates have derailed their 2024 listing plans, data shows. For example, Swiss agricultural giant Syngenta canceled a $9 billion equity offering in Shanghai.
China’s domestic benchmark is up 7% this year, but total IPO funds fell nearly 90% to $2.6 billion in the first four months. This is the lowest level since 2013.
Representatives from the CSRC and the local stock exchange now show up at the offices of IPO applicants and insist on checking their business and personal records to assess their financial health and management quality.
Likewise, underwriters for potential IPOs should be present and prepared to face questioning from regulators and exchanges. However, this raises the risk that banks and brokerages will become trapped in their clients’ regulatory problems. In some cases, bankers had to surrender their computers and mobile devices to avoid being left out of the IPO or even losing their jobs.
In February, the CSRC fined Shanghai semiconductor company S2C for fraud in its listing application, despite the company canceling its planned July 2022 IPO.
Such measures to curb IPOs have worsened the outlook for investment banks and professional services firms. Equity underwriting fees in China fell 77% to $301 million last quarter from a year earlier, the lowest level since 2009.