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IPOs sink without trace in 3Q amid uncertainty

By Zhou Yan (China Daily)
Updated: 2008-11-04 09:59

With share prices and investor confidence taking a nosedive, initial public offerings (IPOs) have disappeared off the radar, with no companies going public on mainland bourses in October.

Only 30 domestic companies went public in the third quarter of 2008, down 60.5 percent year-on-year, and the total funds raised on the Shanghai and Shenzhen stock exchanges dropped 86.5 percent year-on-year to $3.12 billion, according to Beijing-based investment research and consulting firm ChinaVenture.

Venture capital and private equity have also gone into hibernation. The money they pumped into promising Chinese companies in the third quarter of this year plunged 94.1 percent from $521 million a year earlier.

"The secondary market has almost lost its financing functions due to the continuous slump of indexes, while the dire shortage in demand will further depress IPO pricing and the rate of return," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.

ChinaVenture's survey also showed a dramatic decline in the IPO rate of return of VC/PE-backed companies, which has fallen to 1.97 times, compared with 7.39 times in the third quarter of last year.

"Faced with growing economic uncertainty, venture capitalists may take more cautious and conservative steps when investing in startup companies," said Liu Zhiteng, an investment manager at Blue Ocean Capital (U2ipo), a Shanghai-based investment consulting firm.

According to statistics compiled by Guangzhou Daily, the Issuance Examination Committee (IEC) under China's securities watchdog has not received any applications for share issues from companies since Sept 16.

China's benchmark index, the Shanghai Composite Index, dropped 25 percent in October, the largest monthly slide since February 1995. And the combined third-quarter net profit for China's publicly traded companies dropped 19.89 percent to 227.1 billion yuan, from the previous quarter, China Securities Journal reported.

In addition, the average premium rate of the first day closing price for 77 newly-issued stocks on China's two bourses was 112.54 percent as of October this year, compared to 194.64 percent for 129 newly listed stocks in 2007, according to the Securities Times.

Chinese companies will still shun raising money from the secondary market given worsening corporate profitability and negative investor sentiment, Wu said.