January 12, 2014 / 4:23 PM / 5 years ago

China says to strengthen supervision of IPOs

SHANGHAI (Reuters) - China will strengthen its supervision over initial public offerings (IPOs), the securities regulator said late on Sunday, two days after a small drug maker postponed its share sale saying it was “too big”.

An investor sits in front of an electronic board showing stock information at a brokerage house in Shanghai, January 2, 2014. REUTERS/Aly Song

The China Securities Regulatory Commission (CSRC), which had promised a more hands-off approach to IPOs after resuming them earlier this month following a 15-month hiatus, said it will step up monitoring of the deals and their pricing.

The regulator said in a statement posted on its website it will make random inspections on the procedures of book-building and roadshows.

The statement comes after Jiangsu Aosaikang Pharmaceutical Co Ltd said on Friday it had delayed its IPO after pricing it at 72.99 yuan ($12.06) per share, equivalent to 67 times its 2012 net profit.

The average PE ratio of pharmaceutical companies listed on Shenzhen’s Nasdaq-style ChiNext is 55.31, according to the state-run Shanghai Securities Journal.

The CSRC denied it had forced Jiangsu Aosaikang Pharmaceutical to halt its IPO, saying the decision was made by the company and the underwriter, China International Capital Corp. But sources familiar with the matter had earlier told Thomson Reuters publication IFR that the regulator had pressured the drug maker to postpone.

In the statement issued on Sunday, the CSRC said it would stop the IPO and mete out punishment according to relevant rules if an issuer and lead underwriters are found to have used information other than what is disclosed publicly in the prospectus.

The issuer and the underwriters will be required to publish special statements in advance to caution investors against potential risks if the proposed IPO price points to a price-to-earnings ratio that is higher than the average PE ratio of their listed peers, it said.

Consulting firm PwC has forecast the Chinese IPO market could be worth up to 250 billion yuan ($41.3 billion) in 2014.

($1 = 6.0521 Chinese yuan)

Reporting by Kazunori Takada and Samuel Shen; Editing by Sonya Hepinstall

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