Move focuses on companies involved in certain 'high-risk' industries

SHANGHAI - China's securities regulator has tightened its approval requirements for initial public offerings by companies in industries seen as having a high risk of financial irregularities, including restaurants and chain stores, industry sources told Reuters.

The tightened requirements, which have not been officially announced but were communicated to investment bankers involved in IPO plans, have been ratcheted up over the past couple of months, said four sources with direct knowledge of the changes.

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While there was no clear signal from the Chinese government on the reasons behind the changes, at least some of the steps appear to have happened in the wake of accounting scandals among some Chinese companies listed overseas, which have cast a spotlight on weaknesses in Chinese corporate governance.

Around two months ago, the China Securities Regulatory Commission (CSRC) raised the requirement for annual profits for restaurant operators seeking IPOs to 50 million yuan ($7.7 million) from 30 million yuan, one of the sources said.

The Chinese regulator then heightened its scrutiny of restaurant IPOs in the past month or so, one investment banking source said, while another said the focus on accounting issues surrounding franchise-style chain stores had come about in the last two weeks.

Among the affected companies, the listing application by South Beauty Co, a Beijing-based restaurant chain operator that had been planning to list in Shenzhen, has been shelved by the CSRC, according to two people with direct knowledge of the deal.

However, the move was not related to any specific concerns about South Beauty's accounting practices, they added.

UBS AG was advising South Beauty on the planned listing.

A spokesperson at the CSRC declined to comment when contacted by Reuters. A South Beauty spokeswoman was not immediately available for comment.

There are currently only a handful of restaurant operators listed on Chinese stock exchanges, including the Beijing roast duck chain China Quanjude (Group) Co and Beijing Xiangeqing Co.

Reuters