Regulator issues new rules on IPO sponsors
(Shenzhen Daily/Agencies)
Updated: 2005-01-06 13:55

China's securities regulator will allow a sponsor, required for new share offerings, to participate in only one fundraising at a time, in a move that appears aimed at ensuring backers are careful in choosing companies.

The China Securities Regulatory Commission (CSRC) said in its brief statement Tuesday that it would not entertain applications from proposed sponsors for a new fundraising until their previous one was completed.

While technical, the new requirement could reduce the number of IPO applications regulators need to sift through, since China only has a few dozen registered sponsors.

In an effort to improve governance on its US$500 billion stock markets, China started in early 2004 to require IPO candidates to obtain qualified sponsors.

The sponsors are required to ensure that financial data put forward by a company raising funds is truthful, and typically sponsors are individual members of the underwriters of the offering.

The tweak in rules suggests sponsors could become more careful in choosing listing candidates, since they can now have only one at a time.

Local press reports have indicated the sponsor system has had a number of problems since it took effect early in 2004. Tuesday’s announcement also included a slight adjustment in the definition of who can qualify to be a sponsor.

The CSRC said Oct. 25 that it had called in certain top executives of investment bank BOC International to voice its concern over a possible breach in the sponsor rules.

The regulators said BOC International, controlled by Bank of China, replaced an approved sponsor with an unregistered sponsor when it was backing the IPO of Shanghai-listed SDIC Zhonglu Fruit Juice Co.

The CSRC last month issued new rules on the pricing of IPOs, leading to expectations the authority will soon permit more companies to offer shares. It closed the window to new share offerings last August.

The pricing change means some offers will follow a discovery method, which could limit the impact of a first trading day pop-up that investors often expect, but which gives the market little interest in long-term investment.

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