Rules on IPO pricing system take effect
(Xinhua)
Updated: 2005-01-01 11:09

China will introduce regulations on a new pricing system for initial public offerings (IPOs), also known as an IPOs enquiry system, from Jan. 1, 2005, according to the China Securities Regulatory Commission (CSRC).

This represents one of the major efforts made by the securities watchdog to strengthen institutional arrangement for the country's securities market. The country's Shanghai and Shenzhen stock exchanges closed for the three-day New Year holiday starting Jan. 1.

Under the new Regulations on Strengthening Protection of Legitimate Rights of Minority Stockholders, firms planning to launch IPOs will have to inquire about share prices among institutional investors, and the final IPO price will be decided by the result of the inquiry. Stock issuers and sponsors must then evaluate the prices.

The new system is supposed to give investors more say in the pricing process and better protect investors' interests by presenting more financial information of the listing applicants.

In the past, there were complaints that many IPOs were overpriced and insufficientlytransparent. The draft of the regulations was made public on August 30, 2004 by the CSRC. No IPOs have been offered since then.

The new regulations became effective after the National People' s Congress, China's top legislature, passed amendments to the Company Law, which scrapped an article requiring the approval of the commission on IPO prices.

Stock issuers and sponsors must ask at least 20 qualified institutional investors about the prices of their IPOs. The band of the final prices and the ratio of prices to profit will be determined according to their quoted prices.

If 400 million or more shares are offered, the number of institutional investors must exceed 50. A CSRC official said the new regulations represent a milestone in the history of the country's securities sector, indicating the establishment of a market-oriented IPO pricing system.

The system will help improve the efficiency of resource distribution and facilitate healthy development of China's immature stock markets, said the official, who declined to be named.

But some investors say there are concerns that would-be listed firms can still form alliances with institutional investors to settle IPO prices under the table, which may erode the interests of small investors.

China's two exchanges have been bearish, and investment sentiment has been weak for the past several months due to irregularities by listed firms, among other reasons.

The Chinese government formulated a nine-point strategy last year to create a better environment for the healthy and smooth development of the securities market. The CSRC has since then introduced a number of innovative rules to regulate markets, and has moved to improve transparency of policy-making to stem corruption.

The agency now reveals the names of participating members that vote on each initial public offering application on its website for public supervision.

The CSRC issued regulations giving minority stockholders the ability to influence major decisions in the listed companies they invested in.

Tong Daochi, deputy director-general of the CSRC's Department of Listed Company Supervision, said the rules are good news for investors.

Under the new rules, firms whose stocks are traded on Shanghai and Shenzhen stock markets and their majority stockholders must create a mechanism allowing minority stockholders to vote on major company matters. A company cannot introduce a major business move if it does not win at least half of its minority holders votes at the stockholder conference.

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