China’s Low IPO Approval Rate Expected to Persist

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Members of industry expect the IPO pass rate of 50% for the first four months of 2018 to continue as the China securities regulator steps up its standards for approval of new listings.

The China Securities Regulatory Commission gave its approval to only 43 out of 86 IPO applications reviewed during the period from January to April, refusing a total of 37 and delaying voting six, for a pass rate of just 50%.

While the pass rate of 50% for the first four months of 2018 marks a slight increase compared to the rate of under 50% for the first quarter of the year, members of the securities industry say that strict inspection standards will remain unchanged and keep approval rates low.

According to Securities Daily reasons cited for the refusal of IPO applications include affiliate transactions, problems with sustained earnings capability, financial problems, compliance or legal issues, internal control problems and independence problems, as well as doubts over the veracity of the financial reports that underlie key indices such as gross profits and accounts receivable.

In tandem with the low IPO approval rate the number of enterprises waiting in line for review by CSRC has continually fallen, as have the amounts raised by successful applicants.

Since the start of the year 39 enterprises have obtained their IPO approval documents to raise a total of 40.3 billion in funds, as compared to 158 enterprises and 80.5 billion in funds during the same period last year.

“Under conditions for the normalisation of new share issuance, approval document volumes and the amount of funds raised are declining,” said one Shanghai-based investment banker to Securities Daily.

According to the banker IPO normalisation can help to ensure the capacity of the market as well as the confidence of investors, while a reduction in the funds raised by enterprises is of benefit to stabilising new share issuance.

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