IPO resumption reignites market spirit, reform drive

BEIJING - China's move to end a four-month long moratorium on initial public offerings (IPOs) has rekindled investors' spirit as the country's reform drive builds a healthier stock market.

The China Securities Regulatory Commission announced on Friday it will allow 28 companies, whose listings were already approved but halted in July, out of the gate by the end of this year.

Chinese investors rejoiced on Monday, the first trading day after the announcement, with the benchmark Shanghai Composite Index rising 1.58 percent to 3646.88 points.

The commission also introduced significant changes to IPO procedures, allowing investors to subscribe without paying into escrow accounts in advance, giving more priority to information disclosure instead of pre-IPO approvals, and simplifying procedures for smaller IPOs.

It is not the first time China has frozen IPOs.

"Similar actions have taken place eight times in the past. A restart to IPOs often points to investors gathering confidence again," said Ping An Securities analyst Wei Wei.

This time, the relaunch came earlier than expected, showing regulators' resolution and confidence in accelerating capital market reforms and their judgement that the market is now back to normal, Wei said.

IPOs in China were suspended in July after the main market index plunged 30 percent from its June 12 peak, as panic-triggered sell-off spiked a market bubble that was inflated partly by heavily-leveraged trading.

Authorities have since then cracked down on the use of leverage, which magnifies both gains and losses, while pouring funds into the market and investigating "malicious" short selling.

Before the IPO resumption, Chinese shares rebounded more than 20 percent from an Aug 26 low.

"The time is ripe for resuming IPOs, as over-the-counter leveraged trading has been almost cleared," said Guan Qingyou, researcher with Minsheng Securities.

The reforms announced Friday also prevented a supply of new shares from causing turbulence in the market, he explained.

Before the reforms, investors had to freeze big sums of funds in escrow accounts ahead of IPO subscriptions. Under the new rules, they pay only after the allocation of the shares is confirmed.

Investors have embraced the change well. "No freezing money for IPOs? That was like a free lottery!" an Internet user wrote on Chinese microblog Weibo.

IPOs in China were often oversubscribed by more than a hundred times. Early in June, when 25 IPOs took place, nearly 6 trillion yuan ($944 billion) of funds were tied up. Under the new rule, only 41.4 billion yuan would have been locked.

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