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Chinese securities regulator toughens supervision over IPO filings

2021/10/21 12:02:19   source:Global Times

China's securities regulator vowed on Wednesday to strengthen supervision over new share offerings, revealing that 245 firms have withdrawn IPO filings on the STAR Market in Shanghai and ChiNext board in Shenzhen.

In a speech to the annual Financial Street Forum in Beijing, Yi Huiman, Chairman of the China Securities Regulatory Commission (CSRC), made calls to put a hold to mainly placing firms on the technology-focused STAR Market while ensuring the ChiNext market serves growth and innovative firms.

Avoiding arbitrages when it comes to IPO applications on the two sci-tech innovation-oriented markets is one of the highlights for the country's registration-based IPO reforms, according to Yi.

The withdrawal of IPO applications by 245 firms is mostly attributed to "the issue with sectoral positioning," which revealed that some underwriters have unilaterally pursued quantity and scale while failing to catch up in quality control terms, Yi said.

In a recent high-profile case, domestic PC maker Lenovo suddenly revoked its STAR market listing application on October 8, only one trading day after its filing.

Concerns about Lenovo's low investment in R&D, high debt to asset ratio and a high percentage of IPO proceeds planned for reinvestment or boosting working capital were allegedly behind the withdrawal.

Lenovo's research and development spending as a percentage of its revenues is reportedly less than 3 percent, while the STAR Market sets a benchmark of at least 5 percent. Many firms trading on the STAR Market invest 12 percent of their revenue into R&D.

As Yi pointed out, the normal and orderly flows of capital would spur sci-tech innovation and the quality economic development, while capital, with its profit-chasing nature, could easily get trapped into disorderly expansion and even result in monopolies causing an eventual detriment to the interests of consumers and micro, small and medium-sized businesses.

Over the course of the IPO registration reforms, capital needs to be regulated and guided and there ought to be tougher supervision over financing and M&A activities in certain sensitive areas so as to reduce risk spillover, CSRC's chief remarked, calling for the setup of an obligation mechanism and institutional system to avoid the unchecked expansion of capital. 

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