China’s Giddy IPO Guidelines
Chinese stocks held their MSCI index momentum into the year-end economic work meeting, with GDP growth on track at 7.5 percent on good industrial country export and retail sales figures, as the securities regulator detailed instructions for forthcoming Shanghai exchange IPOs after an extended moratorium. Over 750 companies have been waiting for approval which will remain tough to obtain but assign increased responsibility to underwriters and advisers for pricing and timing. Previously officials controlled the entire process and after-market performance lagged with the limited arranger stake. To avoid immediate losses, major share-holders will be subject to a 2-year lockup period and must buy back the offering if disclosures are unsatisfactory. The latter provision spooked investors on the high-growth Chi Next, where P/E ratios at 50 are five times the main board. Several dozen listings could be added in January diverting attention from Hong Kong where bank placements have been particularly active culminating in the Cinda bad asset management arm deal with 10 international cornerstone participants including US distressed debt firms. Capital inflows have boosted the local dollar to the upper intervention range three decades after the peg was launched, and renimbi deposits have also rebounded with reopening of the dim sum bond market and steady property prices despite prudential dampening. Smaller family run banks uncertain about their future are in alliance and merger talks with mainland partners, as the latter also tap wider outward liberalization channels. Domestic outlets have also opened with provincial banks allowed to unload bad loans nationwide, and negotiable CDs now authorized for the interbank market. Beijing’s audit agency has yet to release the formal tally of local government borrowing which may equal the $3.5 trillion in foreign reserves, but the new leadership claims it is “under control” as further municipal bond pilots are planned in 2014.
Total social financing growth is under the recent 20 percent clip as authorities experiment with short-term rate and wealth management product squeezes and consider phased deposit insurance introduction. Corporate bond yields have also jumped on declining state enterprise profitability and rumors that selective defaults may finally occur with an estimate $450 billion coming due next year. Shipbuilder and textile producer collapses were forestalled with rescues during the leadership transition, and a solar firm was recently saved after external bond interruption. Big city property prices continue their ascent as the economic gathering mulls a comprehensive tax regime. Geopolitics may however overwhelm the debate as air patrols are positioned over disputed islands with Japan rerouting civilian traffic and drawing an admonition from the US to pursue peaceful diplomacy instead. Beijing has its own tiffs with Washington on currency and trade issues which have coalesced around the final push for a Trans-Pacific Accord with Asian neighbors said to represent the Obama Administration’s “pivot” strategy, as the Treasury Department pivoted from previous findings of large undervaluation in its regular report to Congress.
