China’s IPO Pass Rate Plunges to under Half


The China Securities Regulatory Commission (CSRC) is stepping up its scrutiny of IPO applicants, with the success rate of public listing hopefuls dropping to under 50%.

Data from Choice indicates that as of 16 April, only 32 out of 65 IPO applicants have secured approval from CSRC following review, for a pass rate of just 49.25%.

This marks a sharp decline compared to the pass rate of 79.33% enjoyed by IPO applicants with CSRC in 2017.

Out of the 65 applicants a total of 26 have not obtained approval from CSRC, while another four companies have “cancelled examinations,” and decisions for another there have been deferred.

When broken down by month, only 14 out of 36 enterprises who came before CSRC in January obtained approval, for a pass rate of 38.89%.

In February 10 companies came before CSRC, with six securing approval for a pass rate of 60%, while in March nine companies met with the regulator out of which five received the green light, for a pass rate of 55.56%.

As of 16 April ten companies have come before the securities regulator, with seven securing approval.

In addition to the drop in approvals, a record number of companies waiting in the IPO line have withdrawn their applications with CSRC.

On 30 March alone a total of 38 companies that were waiting for IPO review decided to terminate inspections.

Figures from China’s bourses indicates that a total of 129 companies have terminated inspections this year, including 47 applying with the Shanghai Stock Exchange, and 81 with the Shenzhen Stock Exchange (22 with the SME board and 59 with the ChiNext board).

A chief reason for the mass withdrawal of IPO applicants is the heightened scrutiny applied by CSRC, which has required that sponsors serve as “gatekeepers,” and promptly withdraw the applications of any unqualified companies.

One Beijing-based investment banker has also told The Beijing News that CSRC is now requiring that IPO applicants post total net profits for the past three years of over 100 million yuan, and at least 50 million yuan in the final year.

“Applicants for IPO’s on the main board must post net profits of at least 80 million yuan in the past year, while for secondary boards the requirement is 50 million yuan.”

In addition to a large increase in the number of enterprises who have terminated examinations, the volume of enterprises who have opted to suspend them has fallen significantly.

As of 16 April only 13 companies had suspended their IPO examinations, while in the fourth quarter of 2017 the figure was 44.

According to analysts the reason for this is that CSRC has improved its IPO procedures, amending the feedback schedule for IPO applications as well as provisions in relation to the suspension, resumption and termination of procedures.

CSRC now stipulate that applicants do  not need to suspend procedures when changing law firms, accounting firms, asset valuation companies, signing sponsors, signing lawyers, signing accountants or signing asset evaluators.