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CSRC chief promises measures to clamp down on IPO price fixing

By Cong Mu (Global Times)

08:04, May 08, 2012

China's top stock market regulator Guo Shuqing said yesterday at a forum in Beijing that his agency will resolutely fight IPO price fixing practices by underwriters who take gifts from issuers.

"The China Securities Regulatory Commission (CSRC) will use the most rigorous measures to clamp down on such irregular practices, perhaps even amending the laws," Guo, CSRC's chairman, told a gathering of officials and securities brokerage firms' executives yesterday.

China's stock markets have long been troubled by excessively high first issuance price-to-earnings (P/E) ratios, because of a lack of effective supervision of IPO pricing.

Underwriters, accountants, private equity investors and financial PR companies sometimes make the fundamentals of an issuer look better than they really are, so that they can set a higher issuing price. In this way, even if the price falls precipitously after the issuance, the original shareholders in the issuing company can still make a profit from selling their shares.

On April 28, the CSRC issued a revised guideline on new share issuance reforms, which requires an issuer to disclose additional, detailed information if its IPO P/E ratio is more than 25 percent higher than the average P/E ratio of its listed peer companies.

"The new guideline reinforces the regulator's power over IPO approvals, instead of letting the market decide," Liu Shengjun, deputy director of the CEIBS Lujiazui International Finance Research Center, told the Global Times yesterday.

The requirement has been interpreted as a way to bring down P/E ratios, because investment banks, which get a commission from successful issuance, would not want to risk spoiling the deal by setting the price too high, Money Week newspaper reported in April, citing an unnamed investment bank executive.

Meanwhile, Shenzhen-listed Yunnan Green-Land Biological Technology Co suspended trading yesterday as it is facing several IPO fraud charges, including overstating incomes and asset values.

The CSRC started to investigate the company from March 17, 2010, but could not decide on any punishment as of April 24, the company said in a statement Friday.

"There are too many interests involved in new share issuance. Guo alone cannot change the system, and he needs to persuade the higher officials to support him and take certain special measures, such as setting up a securities court to try such fraud cases directly instead of using local courts," Liu said.

The CSRC's Investor Protection Bureau issued a statement yesterday saying that it would try to push for the Securities Law to be amended and made more effective.


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