China has lifted its year-long ban on initial public offerings (IPOs) after adopting new regulations relating to IPOs on its stock markets.

 

The regulations, published late on Wednesday by the China Securities Regulatory Commission (CSRC), became effective yesterday.

 

They set out new guidelines for IPO applicants, which have been lining up to list on China's A-share market.

 

The IPO ban was introduced last year while the authorities launched a reform process to change non-traded State shares into tradable stock.

 

Now the IPO market has finally reopened, listings should attract fresh funds to the bourses and improve overall market sentiment, according to Fang Jun, a fund manager with China Asset Management Co.

 

In general, investors accepted the news calmly yesterday.

 

The benchmark Shanghai composite index fell in morning trade, but regained some ground in the afternoon, closing down 0.48 percent at 1,617.28. Turnover was also slightly down.

 

The CSRC released a draft version of the IPO regulations late in April for public consultation so the news has already been largely digested, said Fang.

 

The main rule change includes the requirement that listing applicants should have recorded a minimum net profit of 30 million yuan (US$3.75 million) for the last three fiscal years.

 

They are also obliged to disclose their prospectus (the version used for applications) on the CSRC's website before they receive approval.

 

Relevant intermediaries have more obligations to ensure the accuracy and truthfulness of statistics.

 

In spite of fears about rapid market expansion brought about by the expected IPOs, analysts say the authorities should be able to control the pace of IPOs to ease the pressure.

 

"It's unlikely there'll be a flood of IPOs. Ultimately, investors will have more choices, either large caps or small companies," said Fang.

 

"That's good for the market in the long run."

 

CSRC officials did not reveal what types of companies will gain approval first, although some market sources expect so-called blue-chip firms will be first because of their stable financial status and better performance.

 

However, smaller firms will also have their chance.

 

Chen Hongqiao, deputy general manager of Shenzhen Stock Exchange, said yesterday that the resumption of IPOs would bring fresh blood to the small and medium-sized enterprise (SME) board in Shenzhen.

 

Currently the SME board only has 50 listed companies, although the country has many fund-thirsty SMEs eager to enter the market.

 

SME's low liquidity and lack of transparency often make them less popular among investors, but their big growth potential also leads to opportunities, said Lin Yixiang, general manager of Tianxiang Investment Consulting Co.

 

To help investors avoid risk, the Shenzhen exchange will launch a new exchange-traded fund for the SME board next Monday together with China Asset Management Co and China Construction Bank.

 

The fund, by tracking the movement of the stock index instead of individual stocks, will enable investors to diversify their portfolios.

 

(China Daily May 19, 2006)