In the last two days of 2013 several firms were approved for initial public offerings (IPOs) by the China Securities Regulatory Commission (CSRC), marking the resumption of IPOs on the domestic A-share market after a suspension of more than a year.
According to PwC, A-share IPO activity will be robust in 2014. There will be a significant increase on 2012, with a high level of 300 new A-share IPOs. Total funds raised are expected to reach RMB 250 billion.
While there was no IPO activity in mainland China in 2013, there were a number of policy announcements from the CSRC aiming to supervise and guide companies that were making IPO applications. The most important of these was the IPO system reform plan unveiled on 30 November. It is seen as a major step towards a registration system for IPOs, rather than the current administration approval mechanism, thus laying the foundation for the future development of capital markets.
During 2013, some withdrew their applications and some turned to other capital markets or different funding sources, meaning that the number of businesses waiting for an A-share listing declined from more than 800 in early 2013 to 756 in December.
There are now 360 enterprises registered on the New Third Board. With its nationwide expansion, more than 5,000 companies are expected to be trading on the New Third Board in the next 5 years, making it an extra fundraising platform alongside the Shanghai and Shenzhen stock markets.
On 27 December 2013, the State Council also outlined a raft of measures aimed at better protecting the interests of small and medium investors in capital markets.
The nine-point document outlines important measures to protect investors’ interests, including intensifying investor classification, boosting information transparency and improving dispute settlement and compensation systems.
"We believe that many key policies will be announced this year," says Frank Lyn, PwC China & Hong Kong Markets Leader. "The reform plan of the IPO system announced by the CSRC is an important document which captures the spirit of the third Plenary Session and shows the market-oriented and legal reform trend within capital markets."
Lyn note that in transitioning to a registration system for IPOs, fundraising methods and the timing and pricing of issues will be subject to market mechanisms. The disclosure document is the essence of IPO approval. In the future, if fraud in the IPO process or information disclosure is discovered, the relevant senior executives and intermediaries will be punished severely.
"We believe that these reform measures will result in a better supervised and healthier capital market. This will instil confidence in both enterprises and investors, while creating systemic guarantees for the market," adds Lyn.
According to Jean Sun, PwC China Assurance Partner, IPOs have resumed and more than 700 businesses have made their applications. "For some of them, their management oversight, corporate governance and business models have been put to the test by the market. Their IPOs represent major milestones in the development of these companies. Some that have considered other platforms may turn back to the A-share market, helping A-share IPOs to soar and possibly reach a record high in 2014."
PwC expects manufacturing, retail and consumer goods, and technology to be the dominant industries."The United States continued to lead the market in 2013, both in terms of number and total value of IPOs. Funds raised in the US increased by 36% on 2012.
The NYSE and Nasdaq accounted for RMB 345 billion. Hong Kong came second, with 112 IPOs raising HK$168.9 billion (RMB 132.1 billion). This was an 88% increase on 2012 (HK$89.8 billion). Of the 112 companies, 89 listed on the Main Board (2012: 52) and 23 opted for GEM (2012: 12).
PwC expects about 100 new IPOs in Hong Kong this year, with roughly 80 on the Main Board and the remainder on GEM. Funds raised should total around HK$250 billion.
"After years of integration and collaboration with Mainland bourses, coupled with development in its own right, the Hong Kong market has become one of the best listing platforms for Mainland and overseas companies," says Edmond Chan, PwC Capital Market Services Group Partner. "More Mainland companies from different sectors are considering IPOs through the Hong Kong Stock Exchange. I believe the trend could continue and make Hong Kong a more comprehensive fundraising platform."