China eases rules for companies seeking to launch IPOs abroad

Ernst & Young says 800 Chinese companies are waiting to launch IPOs

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China’s government has made it easier for companies to launch IPOs in foreign countries, eliminating profit, assets and fund-raising limits, as part of an effort to clear out a backlog of companies in the country waiting to make a public offering.

The China Securities Regulatory Commission eliminated requirements that companies have net income of at least 60 mn yuan, net assets of a minimum of 400 mn yuan and seek to raise at least $50 mn before they could apply to launch an IPO outside the country.

The announcement comes days after a report by audit firm Ernst & Young stating that more than 800 Chinese companies are on waiting lists to launch IPOs with a combined value of more than 500 bn yuan.

If the companies on the waiting lists alone meet their IPO fundraising objectives, IPO value in 2013 would almost quintuple the 103 bn yuan raised in the first 10 months of this year in IPOs by Chinese companies, Ernst & Young says.

Ernst & Young says high macroeconomic volatility, changes in political leadership and other factors slowed down the market for Chinese IPOs in 2012.

The Hong Kong, Shanghai and Shenzhen stock exchanges saw a total of 214 deals with total fund raising of $27.9 bn. That marks a decrease of 62 percent compared to 2011, which saw 362 IPOs that raised a combine total of $72.5 bn.

Ernst & Young notes, however, that the market for IPOs by Chinese companies was picking up in the fourth quarter, particularly with the $3.4 bn IPO of People’s Insurance Company of China, the biggest deal on the HKEx this year.

‘Looking ahead to 2013, we expect a better outlook, as many new supportive policies – which were on hold amid leadership change – will start to take effect,’ says Terence Ho, Ernst & Young’s Greater China strategic growth markets leader, in a statement. ‘They include economic initiatives that will be rolled out in the mainland and expected to benefit companies in certain preferential sectors.

‘With expected reduced stock market volatility, supportive new economic policies, and better and brighter economic prospects, IPO activity in the latter half of 2013 is set to improve – suggesting that it could be the right time for companies currently in the pipeline to list next year.’

Ho adds that Ernst & Young predict an increase in IPOs of small to medium-sized Chinese companies this year as well, after government policy changes to promote initial public offerings from those tiers of companies.