China's IPO reform a ‘significant milestone’, Goldman Sachs says

China's IPO reform a ‘significant milestone’, Goldman Sachs says
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(Feb 3): China’s planned easing of rules for initial public offerings (IPOs) will allow more mid-sized companies to tap domestic investors with larger firms considering listing onshore instead of Hong Kong, Goldman Sachs said. 

The China Securities Regulatory Commission’s plan unveiled this week eases rules for IPOs across all of its exchanges that will simplify and quicken the process. The regulator is now seeking public feedback on the draft rules until Feb 16. 

Once implemented, the changes “will bring the Chinese onshore market closer to international practices”, James Wang, a co-head of Asia ex-Japan ECM at Goldman Sachs, said in an interview. “It will attract further interest from international investors, who are seeking to build A-shares market exposure, but currently see it as being too distant and complicated. It’s a very significant milestone.”  

The proposed amendments build on rules adopted by Shanghai’s Star board in 2019 and Shenzhen’s ChiNext in 2020, Wang said. Onshore IPOs remained active throughout 2022, amid strong appetite by local investors, even as they slumped in traditional venues from New York to Hong Kong.

Onshore IPOs will become particularly attractive for pre-profit Chinese companies with market capitalisation of between US$1 billion (RM4.27 billion) and US$5 billion, Wang added. Potential candidates include fast-growing firms in the consumer, electric vehicle and renewable sectors. Large companies that previously would have turned to Hong Kong could consider the onshore market, he said. 

The pipeline for mainland offerings should remain strong as processes are streamlined, with fewer steps and regulatory involvement. “Previously, there was a very long queue,” Wang said.