Valuations of “new economy” initial public offerings in Hong Kong are ringing alarm bells in China, with the securities regulator urging institutions to be “responsible” and professional in the book-building process, the Securities Daily reported.
The China Securities Regulatory Commission (CSRC) summoned more than 200 fund houses, brokerages and insurers to a meeting in Beijing on Thursday, an article posted on the paper’s website said.
Attendees were asked to conduct “independent, in-depth, and objective” research before submitting price quotations for shares sold in IPOs, it said.
Institutional investors who participate in IPO book-building must submit their research reports to CSRC for review, the Securities Daily said.
The newspaper said a CSRC official, who was not identified, cited the poor performance of a slew of “new economy” stocks following their Hong Kong IPOs, including Ping An Healthcare and Technology Co, Zhongan Online P&C Insurance Co , China Literature Ltd, Yixin Group and Razer Inc.
According to the article, the official said “This contrasts with the red-hot demand during the IPO subscription period, and has triggered investor concern over valuation bubbles of new economy companies. This is an alarm bell for us.”
The official added that investors should learn a hard lesson form the Hong Kong experience as they set price for companies’ IPOs in China, where the market is dominated by retail investors and is more fragile.
The warning comes as China is luring so-called “new economy” companies to list in the domestic market. High-tech firms planning to float in China include Alibaba, Baidu and JD.com.
Chinese smartphone maker Xiaomi has already filed applications to list in Shanghai and Hong Kong.
However, pricing IPO shares for new economy companies poses a challenge for Chinese underwriters and investors, as Chinese regulators have so far only allowed profitable companies and mature businesses to list, while capping valuation of IPOs at around 23 times earnings.
The Securities Daily said Chinese regulators have urged institutional investors to play a key role in setting IPO prices that stand the test of time and guide the market toward rational investment.