The China Securities and Regulatory Commission (CSRC) is cutting down the almost 900-strong backlog of companies on its IPO waiting list to remove “unsuitable” companies, unnamed sources close to the matter have told the Wall Street Journal.
According to one of the sources, however, there is an ulterior motive behind the process.
“The current size of the backlog is too heavy for the market to absorb,” the source said, “so the CSRC is basically asking many of the IPO candidates to drop out or be kicked out so as to ease the pressure.”
On the extent of the regulator’s action, the source added: “There are internal discussions within the CSRC that point to a desire to slash the length of the IPO queue by as much as one third.”
Asked by the Wall Street Journal to comment on the sources’ revelations, the CSRC declined.
The news comes as former CSRC vice-president Li Jiange, now vice-chairman of a prominent finance firm, warned that prospective backers are growing more and more jittery about putting their money into listed firms because they are finding it increasingly hard to read the shifting regulatory landscape.
This has become a particularly difficult hurdle for investors in the wake of last year’s government intervention to rescue the stock market, following Black Monday and Black Tuesday of 24 and 25 August. During the 48-hour crisis point, shares plummeted by $5 trillion.
“Investors are reluctant to put in their money and support the direct financing of private companies,” Li told the South China Morning Post, “because they are not sure about the stability of the rules.”
He added: “The securities regulator made some mistakes last year when [trying to stabilise] the market, due to lack of experience. And the back and forth changes in rules have left investors puzzled.”
Earlier this year, there were indications that the CSRC planned to take a softer line on IPO approvals – but that was before the body’s former chairman Xiao Gang was removed in February after almost three years of service.
Since Gang’s successor Liu Shiyu took the helm, the organisation’s rigorous approach to probing the content of IPO proposals has arguably intensified. In June, the regulator announced fresh steps to crack down on so-called ‘backdoor listings’ – more formally known as reverse mergers – whereby unlisted Firm A attempts to secure a foothold in China’s stock market by purchasing a controlling stake in listed Firm B.
Under planned, new CSRC rules, corporates would be banned from setting up shell companies to facilitate such deals, effectively preventing backdoor listings from taking place.