China IPO flipping heading for flop
By Paul Mackintosh - 17/09/12
Many readers will remember a time when Hong Kong was the world’s Number One IPO venue. According to a recent report from Haitong Securities – itself a beneficiary which raised US$1.7 billion in one of the territory’s largest 2012 listings – quoted in the Wall Street Journal, Hong Kong’s IPO market this year stands at a ten-year low, at $5.8 billion to end August 2012. And according to Dealogic, Hong Kong is down to fifth place in the global listing venue stakes. This potentially limits China private equity investors’ ability to return proceeds to what used to be a highly preferred venue for investee company listings. Reuters’ latest bulging HK IPO pipeline, topped by People’s Insurance Company of China Group, targeting up to $6 billion in proceeds, cannot disgorge quickly enough. But apparently the Shanghai tranche of that $6 billion will be kept on hold, as the company delays the mainland share of its dual listing.
Naturally, global volatility and China’s continuing economic slowdown have depressed sentiment. However, China appears to be scotching hopes of major IPO activity. The China Securities Regulatory Commission (CSRC) has reportedly approved no new listing applications for domestic bourses from mid-July to mid-August. Other reports in China Daily claiming that the CSRC is now pushing ahead to prioritize listings for West China companies are not so much a promising sign as a symptom of the major underlying problem.
Commentators have attributed the slowdown in mainland IPO approvals to the CSRC’s concern over the state of the nation’s stock markets – Shanghai is down almost 20% on the year to end August, according to Reuters – and its eagerness to reform them before further listings can take place. But in China, reforms in one area tend to require action in others, necessitating high-level policy coordination. And the CSRC’s apparent openness policy-driven measures like the “Drive to the West” underline how far from a free market these stock markets are. Politics, it seems, still trumps economics.
“China's stock market is at a historic low compared to other major international markets, and it is a good time for long-term investment,” the CSRC said optimistically, as quoted by People’s Daily. But a state that cannot even produce clear and unambiguous official reports on the whereabouts and condition of its own vice president is not likely to deliver uniform and coordinated financial sector reform anytime soon. China’s listing market remains in hock to its imperfectly developed political system, and if the latest omens are anything to go by, that could be about to disappoint. As may be the many RMB-denominated “private equity” funds that banked on a quick IPO flip as the source of their returns.