China has seen a significant decline in IPO activity in recent months, and the decline could worsen as regulatory scrutiny increases.
A total of 30 IPOs in the country raised 23.6 billion yuan ($3.26 billion) in the first quarter of this year, according to a Deloitte China report. This represents a decline of 56% and 64%, respectively, compared to the same period a year ago.
Many companies are canceling listing plans. In March, Swiss agricultural chemicals group Sygenta canceled its $9 billion Shanghai IPO after it failed to get the green light from regulators. The company is not alone. In February, exchange data showed that 47 companies had withdrawn their listing plans since the start of the year, up from 27 companies that had pulled out of listing a year ago.
The drop in activity coincides with the China Securities Regulatory Commission’s (CSRC) release of a new set of rules to strengthen oversight of public companies and news listings. Applications should also be scrutinized more carefully to prevent over-funding and combat fraud. The tougher stance came after Wu Qing, a former vice mayor of Shanghai nicknamed the “Butcher Broker,” was appointed chairman of CRSC in February.
At a March press conference, CSRC Vice Chairman Li Chao said the guidelines were in line with “strengthening regulation, preventing risks and promoting high-quality development.” Last month, the CRSC went further, saying it plans to conduct random audits of at least 25% of companies going public (up from 5% in 2023).
While the new rules are intended to restore confidence in China’s weakening stock market, they have a short-term chilling effect on companies looking to go public. Deloitte China now forecasts that China’s A-share IPO market will slow significantly in 2024, with 115 to 155 new listings bringing in revenue of up to 166 billion yuan, lower than Deloitte expected. Meanwhile, boards in Shanghai and Shenzhen could have between 25 and 35 listings, raising up to 84 billion yuan. However, tighter regulation is expected to benefit the Chinese stock market in the long term as it will set a higher benchmark for listed companies.
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