China regulator tells market players to be 'responsible' in IPO pricing -paper

China Literature

15/06/2018 09:07

SHANGHAI, June 15 (Reuters) - Valuations of "new economy"
initial public offerings in Hong Kong are ringing alarm bells in
China, with the securities regulator urging institutions to be
"responsible" and professional in the book-building process, the
Securities Daily reported on Friday.
    The China Securities Regulatory Commission (CSRC) summoned
more than 200 fund houses, brokerages and insurers to a meeting
in Beijing on Thursday, an article posted on the paper's website
said.
    Attendees were asked to conduct "independent, in-depth, and
objective" research before submitting price quotations for
shares sold in IPOs, it said.
    Institutional investors who participate in IPO book-building
 must submit their research reports to CSRC for review, the
Securities Daily said.
    The newspaper said a CSRC official, who was not identified,
cited the poor performance of a slew of "new economy" stocks
following their Hong Kong IPOs, including Ping An Healthcare and
Technology Co  1833.HK , Zhongan Online P&C Insurance Co
 6060.HK , China Literature Ltd  0772.HK , Yixin Group  2858.HK 
and Razer Inc  1337.HK .
     According to the article, the official said "This contrasts
with the red-hot demand during the IPO subscription period, and
has triggered investor concern over valuation bubbles of new
economy companies. This is an alarm bell for us."     
    The official added that investors should learn a hard lesson
form the Hong Kong experience as they set price for companies'
IPOs in China, where the market is dominated by retail investors
and is more fragile.
    The warning comes as China is luring so-called "new economy"
companies to list in the domestic market. High-tech firms
planning to float in China include Alibaba  BABA.N , Baidu 
 BIDU.O  and JD.com  JD.O . 
    Chinese smartphone maker Xiaomi  IPO-XMGP.HK  has already
filed applications to list in Shanghai and Hong Kong.
 urn:newsml:reuters.com:*:nL4N1TD26P
    However, pricing IPO shares for new economy companies poses
a challenge for Chinese underwriters and investors, as Chinese
regulators have so far only allowed profitable companies and
mature businesses to list, while capping valuation of IPOs at
around 23 times earnings. 
    The Securities Daily said Chinese regulators have urged
institutional investors to play a key role in setting IPO prices
that stand the test of time and guide the market toward rational
investment.

 (Reporting by Samuel Shen and John Ruwitch; Editing by Richard
Borsuk)
 ((samuel.shen@thomsonreuters.com;  +86 21 6104 1789; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))