China's regulators to tighten up IPO rules

CHINA STOCK-MARKET listing rules can be controversial and hard to read at the best of times. With this in mind, the China Securities Regulatory Commission is planning to reform the rules governing the sponsors of initial public offerings (IPOs).

Chinese companies accounted for a third of all global initial public offering volumes in 2011, but have struggled lately because of damage to their reputation after a series of scandals.

Since 2004, Chinese companies seeking an IPO in Shanghai or Shenzhen have been required to obtain the endorsement of a qualified sponsor, whose duty is to make sure financial data and other information provided in IPO prospectuses are truthful.

An underwriter often acts as the sponsor of an IPO too, and the system has been criticised because the credibility of information disclosed by listed firms and their sponsors are sometimes questioned by investors.

Zhu Congjiu, who is deputy chairman of the securities regulatory commission, told the advisory body linked to Chinas annual parliament, the National People’s Congress: “Even though the sponsor system has played a significant role in the quality of listed companies’ prospectus disclosures since its adoption, there is no improvement.”

The proposed reform means major participants and sponsors’ institutions will have to take detailed responsibility for their endorsement of an IPO.

The reputation of Chinese IPOs suffered badly after a number of scandals involving Chinese companies in Britain and North America, relating to poor corporate governance. The lottery operator Betex was delisted from London’s Alternative Investment Market (AIM) in 2007, just 19 months after its IPO. Two senior executives had been arrested for illegal gambling.

Meanwhile, mobile phone handset maker ZTC Telecoms got into trouble after its chief executive and main shareholder disappeared in 2008 after using shares as collateral for a loan.