China’s stock exchanges will have their busiest day for initial public offerings (IPOs) on Monday in 16 months, with 10 companies starting trading as the first batch of mainboard listings approved under a registration-based mechanism.
Monday marks the most number of IPO debuts on a single day since November 15, 2021, when the Beijing exchange commenced operations with 10 listings. Five companies including Citic Metal and Zhongzhong Science and Technology will debut on the Shanghai Stock Exchange, while power generator Shaanxi Energy Investment will be among the other firms starting out on the Shenzhen bourse.
The 10 companies are in the spotlight as they are the first to go public after China decided in February to review all IPOs through a fresh vetting system that weighs applications on the basis of the quality of information disclosed instead of growth prospects. As part of a deepening reform of the country’s three-decade-old stock markets, the overhaul also scrapped an administrative cap on IPO prices, allowing new shares to move freely during the first five days of trading.
“The registration-based system will reduce direct interference from the government, and be helpful in boosting the efficiency of resource allocation,” said Liu Min, an analyst at Chasing Securities. “It will increase support from the stock market to the economy by widening fundraising access for small and medium-sized companies and streamlining approval processes.”
The 10 companies raised a combined 21.2 billion yuan (US$3.1 billion) from the offerings, with Shaanxi Energy raking in 7.2 billion yuan from the biggest of the 10 IPOs. Nine of them sold their shares at more than 23 times earnings, a cap previously set by the securities regulator to make sure no IPOs flopped, ranging between 26.3 times to 90.6 times, according to data by Eastmoney.com.
Citic Metal, a commodity trader backed by state conglomerate Citic Group, was the only firm to price its stock below the price-to-earnings ratio of 23 times, offering new shares at a multiple of 20.2 times, data shows. Shaanxi Energy sold its IPO stock for the highest multiple among the firms.
As part of the change in IPO rules, the 10 companies and other future mainboard listings can trade without any exchange-imposed limits on daily movements on the first five days of trading, a move that is expected to allow investors to fully explore stock values. A 10 per cent daily trading band will be put in place afterwards.
Market sentiment remains in favour of listings. Traders have returned to the market after some leading economic indicators showed that China’s recovery from the fallout of Covid-19 was still under way, driving up turnovers. The combined value of shares that changed hands on the Shanghai and Shenzhen exchanges has surpassed 1 trillion yuan every day in April, spurring a call from Yingda Securities that local stocks are tipping towards a bull market.
A total of 55 companies have completed listings on the Shanghai and Shenzhen exchanges this year, as of last week. The best debut performer was MLOPTIC, a maker of optical components that surged 175 per cent on the first day of trading in Shanghai on March 9.
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