Daily Management Review

IPO volume in China can grow to six-year high


01/10/2017


In 2017, IPO fundraising in China is expected to reach its highest level in six years, as the government is turning to the stock market to help companies reduce debt, Bloomberg reports.



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Volume of initial public offerings in mainland China will grow by 50% to about 225 billion yuan ($ 32.4 billion), according to analysts surveyed by Bloomberg agency.

The increase will follow growth in the IV quarter of 2016 when volume of funds raised from IPOs listed in RMB on the Shanghai and Shenzhen stock exchanges jumped more than six times higher than in the same period a year earlier.

Debt reduction has been named a key priority at the Central Economic Working Conference (annual meeting of leading Chinese politicians to adopt decisions on plans and objectives of economic policy for the next year). Focusing on selling shares indicates that the Chinese market regulator may accelerate admission of securities to trading. This, in turn, would allow more companies to sell shares this year, told Dai Ming, a representative of Hengsheng Asset Management company.

"Financing through sale of shares now seems the best way to reduce the debt burden, - said Dai Ming. This predicts at least 50%-growth of funds attracted during IPOs… IPO market is now more stable."

Every initial public offering in China must be approved by the Commission on Regulation of Securities market. Number of applications to be considered by the Commission was 637 as of December 29, while there were more than 730 in the middle of the year, according to the commission’s website.

According to data compiled by Bloomberg, a total of 227 Chinese companies conducted IPO in 2016. At the same time, volume of borrowed funds decreased by 5.6% to 150.1 million yuan. IPO pace has accelerated in the IV quarter of 2016, when China held 102 IPO totaling 73.5 billion yuan - this is 54% more funds than were involved in the III quarter.

More frequent public offerings help to soften sharp rises in stock prices after IPO on Chinese stock exchanges, analysts said.

Impressive growth rates of firstly placed shares was obliged, in particular, to actions of the regulator. The watchdog appears to limit valuation of market newcomers (P/E less than 23) and excess liquidity from investors.

Average IPO growth in China in 2016 was $ 106 million versus $ 117 million a year earlier.

December brought 43 IPOs, which was the highest monthly figure since May 2015.

By the end of 2016, Hong Kong Stock Exchange has kept the world championship in terms of IPOs for the second year in a row.

As stated in report of stock exchange operator HkEx, 126 companies held IPO in 2016. Total sum amounted to 194.8 billion Hong Kong dollars ($ 25.1 billion).

Number of transactions decreased by 8.7%. Amount of borrowed funds decreased by 26% and touched a minimum of eight years.

The Shanghai Stock Exchange ($ 16 billion) took the second place by IPO value in 2016, and the third place is occupied by New York Stock Exchange (the NYSE, $ 11.87 bln), writes South China Morning Post.

source: bloomberg.com, scmp.com






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