China punishes 19 institutions as it tightens checks on IPO price-setting

HONG KONG (REUTERS)- China’s securities regulators punished 19 institutional investors as the authorities tighten scrutiny over price-setting behaviours under a more liberalised listing system.

China launched the tech-focused Star Market in Shanghai along with the introduction of a US-style, registration-based initial public offering (IPO) system in that market in mid-2019.

The Securities Association of China (SAC) said late on Friday that a joint probe with the Shanghai Stock Exchange over Star IPOs had exposed issues with 19 institutional investors.

The problems included weak internal controls, inadequate rationale for price-settings, non-compliance with stipulated procedures and improper storage of working papers, the SAC said in a statement, without identifying the companies.

One insurer has been temporarily banned from participating in the institutional portion of IPO subscriptions, while eight fund houses and one asset manager have been barred from the share placement market for a month, according to the statement.

The SAC said regulators will strengthen supervision and step up penalties against misbehaviour to maintain order for IPO price-setting and protect investors.

China has already replicated the registration-based IPO system to Shenzhen’s start-up board ChiNext, and aims to gradually roll out the mechanism to the rest of China’s stock market, which still uses a system based on regulators’ approvals.

Shanghai will host the world’s two biggest IPO listings this year. Some of the country’s biggest telecommunications operators, including China Telecom, are looking to list in Shanghai after being pushed out of the US amid growing economic friction between the world’s two largest economies.

Syngenta Group, the Swiss seed and fertiliser business owned by China National Chemical, is also preparing a 65 billion yuan (S$13.6 billion) listing on Shanghai’s Star board. If the offers meet expectations, funds raised through first-time share sales on the mainland this year will climb to about US$59 billion (S$80 billion), data compiled by Bloomberg shows.

Chinese domestic IPO proceeds are already at their highest level for this period in 11 years, while the number of deals, 320, is a record, the data shows.

The CSI 300 Index, China’s equity benchmark, has rallied 35 per cent in the past two years, compared with a 4 per cent gain for Hong Kong’s Hang Seng Index.