HONG KONG â€" Five companies shelved plans to sell shares on Monday after the Chinese securities regulator moved to tighten restrictions on new listings, the latest sign of challenges as the mainland seeks to reopen its stock markets to new offerings following a yearlong ban.
The China Securities Regulatory Commission announced on Sunday that it would start investigations of companies that are marketing their initial public offerings to investors, monitoring comments made by executives during such meetings to ensure they do not break the law by disclosing information not included in their public stock exchange filings.
The commission also said that it would monitor companies that seek to sell shares at higher valuations than the average for their industry and require them to make additional risk disclosures. Companies failing to comply would be barred from selling shares to the public, the regulator said.
Five companies that had been among the first since late 2012 to receive approval to sell shares in mainland China said Monday that they would suspend their I.P.O. plans on the ChiNext market in Shenzhen, a secondary board mostly for start-up companies, and on another secondary board for small and medium- size enterprises. The companies are the Beijing Forever Technology Company, the Ciming Health Checkup Management Group Company, the Hebei Huijin Electromechanical Company, Netposa Technologies and the Nsfocus Information Technology Company.
All five said in announcements to the stock exchange that they were pulling their listings in response to the regulator’s move. The withdrawals follow the announcement Friday by Jiangsu Aosaikang Pharmaceutical Company that it was aborting its I.P.O.
The development is a setback for China’s plans, set forth after a meeting in November of the Communist Party leadership under President Xi Jinping, to give the market a bigger role in the process of stock listings.
The Shanghai composite index was the worst-performing in Asia last year, despite the country’s status as the world’s fastest-growing major economy.
Investors fear that the markets will be flooded by new listings from the backlog of more than 700 companies that are waiting to sell shares in Shanghai and Shenzhen, the result of a moratorium on I.P.O.s that had been in place from October 2012 until Jan. 1 of this year. In deciding to unfreeze the I.P.O. market, the securities regulator had announced a number of policies intended to strengthen investor protection, increase corporate disclosure requirements and generally to give the market a freer hand in the listing process.
In addition to announcing the resumption of I.P.O.s, the authorities unveiled several changes meant to partly shift market oversight from an approval-based regime, where the regulator vets deals individually, to a disclosure-based system similar to that in the United States, with the burden of full compliance on the companies.
At the same time, Chinese regulators are attempting to tweak rules to make the process of valuing share sales more transparent.
China’s I.P.O. market has been plagued by numerous cases of companies whose shares surge on their first day of trading â€" the only day when gains or losses are not capped at 10 percent â€" only to plunge below the initially offered price in subsequent days. This has left many ordinary Chinese investors with burnt fingers, and partly explains why trading volumes on the benchmark share index declined for three years in a row, from 2009 to 2011.
But in seeking to curb outlandish price swings in share debuts, the securities regulator may cause the management and major shareholders of I.P.O candidates, if they are unable to get the valuation they want, to reconsider whether pursuing a domestic share sale makes sense.
