Date
28 May 2017
Investors crowd around an electronic board at a brokerage house in Shanghai. Thirty-eight IPO candidates have been stranded by China's decision to freeze new listings. Photo: Reuters
Investors crowd around an electronic board at a brokerage house in Shanghai. Thirty-eight IPO candidates have been stranded by China's decision to freeze new listings. Photo: Reuters

China IPO halt leaves US$386 mln fees in limbo

China’s freeze on initial public offerings has seen hundreds of millions in fees evaporate for now, with 38 companies blocked from share sales before underwriters could push them out of the pipeline.

The hardest hit are Everbright Securities Co., Guotai Junan Securities Co. and China Merchants Securities Co., each with three IPOs stranded, meaning these have been approved by regulators but are yet to be completed.

Bloomberg estimates that as much as US$386 million in fees has been left in limbo, based on averages for deals in the first half.

The loss of revenue adds to the hit brokerages face from the market turmoil, including a decline in the lucrative business of financing customers’ stock purchases and the potential for trading volumes to keep falling.

Citic Securities Co., the nation’s biggest brokerage, has tumbled 28 percent this year compared with a 23 percent gain in the Shanghai Composite Index.

State-backed China Life Insurance Co. dumped 30 million Citic shares on July 10.

The biggest uncertainty now may be whether stocks have found a floor via a slew of government measures, from restricting sell-downs by major shareholders to supplying trillions of yuan to try to stabilize the market.

While trading volumes have fallen from the peaks of this year’s boom, they remain elevated compared with those of past years.

The securities firms also face costs from contributing to government-led efforts to prop up the market.

Twenty-one big firms have pledged a combined 120 billion yuan (US$19.3 billion) to a stock-purchase fund and promised not to sell their proprietary trading positions until the Shanghai Composite rises to 4,500. The index was around 4,000 on Monday.

The IPOs that didn’t make it out the door include Bank of Jiangsu, a sale which may raise as much as 23 billion yuan, according to an estimate by Sinolink Securities Co.

The offerings lined up by Everbright, Guotai and Merchants include Inner Mongolia Dazhong Mining Co., Qianhe Condiment and Food Co. 

The local ventures of foreign firms including UBS Group AG and Morgan Stanley also have IPOs on hold.

The freeze comes after a record first-half for Chinese brokerages that saw industry profits rise 374 percent from a year earlier as an explosion in debt-funded stock purchases fueled a market boom.

– Contact us at [email protected]

FL/RA

EJI Weekly Newsletter

Please click here to unsubscribe