The highly anticipated start of the registration-based initial public offering mechanism for entire A-share market appears imminent, as the first 11 companies seeking stock market debut via the new institutional arrangement received the final supervisory green light from the China Securities Regulatory Commission on Monday.
Five of the 11 successful applicants plan to list on the main board of the Shanghai Stock Exchange while the rest are scheduled to list in Shenzhen, Guangdong province.
Seven of the 11 IPO-bound companies are from the manufacturing sector, while the rest specialize in healthcare, the wholesale business or construction.
The 11 IPOs could raise 17.9 billion yuan ($2.6 billion) in all. The proceeds will be deployed in new projects or used to boost liquidity, the companies concerned said in their prospectuses.
Tian Xuan, associate dean of Tsinghua University's PBC School of Finance, said that listing requirements have been diversified under the registration-based IPO mechanism, helping the entire A-share market to mature. Therefore, valuations of listed companies will be more market-based. Companies that focus on frontier technologies and promise much room for growth will be more favored by investors, he said.
The CSRC, the country's top securities watchdog, announced in February it will extend the registration-based IPO mechanism to the A-share main board. Upon this move, the mechanism, which was first attempted at the STAR Market in Shanghai in July 2019 and then promoted on ChiNext in Shenzhen and the Beijing Stock Exchange, came to be adopted throughout the A-share market.
The Shanghai and Shenzhen bourses started to receive main board IPO applications from March 4.
The exchanges take most of the responsibility in reviewing the IPO applications under the new mechanism. After receiving the approval of the exchanges' listing committees, IPO applications will be finally reviewed and registered with the CSRC, where they will be weighed in the context of the country's policies and industry characteristics, according to the main board listing process.
According to Yang Chao, a strategist at China Galaxy Securities, the revision efficiency stands enhanced under the registration-based IPO mechanism. Therefore, the companies using this route may start trading on the main board in early April at the earliest, he said.
Tian of Tsinghua University said private equity firms and venture capital firms that focus on the earlystage investment in startups, will find more exit channels under the registration-based IPO mechanism. They will be able to earn higher returns on their investments more efficiently.
In this sense, long-term investors will more deeply participate in the process of discovering true value in the market. A better investment and financing ecosystem will thus be nurtured, facilitating the development of scientifically advanced and technology companies, he said.
The benchmark Shanghai Composite Index slid 0.72 percent on Tuesday while the Shenzhen Component Index closed 0.77 percent lower. As of Monday, there were 261 main board IPO applications awaiting the CSRC review, including the 11 companies nearing their stock market debut.
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