IPO freeze puts underwriters in major quandary

The local ventures of foreign firms including UBS Group AG and Morgan Stanley also have IPOs on hold.

The freeze comes after a record first-half for Chinese brokerages that saw industry profits rise 374 percent from a year earlier as an explosion in debt-funded stock purchases fueled a market boom.

Now, the loss of momentum for the securities industry includes margin finance, the money brokerages loan for stock purchases, falling 37 percent as of Thursday last week from a June 18 peak of 2.27 trillion yuan.

Liao Qiang, a Beijing-based analyst for Standard & Poor's, wrote in a July 9 report: "Brokerages' profitability may weaken significantly in 2016 because of a possible decline in brokerage fees, margin finance spreads, and underwriting commissions, together with a spike in credit losses."

Before the IPO freeze, PricewaterhouseCoopers had forecast that initial share sales could total 300 billion yuan for the year, from 146 billion yuan in the first half. It estimated that as many as 400 firms could tap the market.

Besides the 38 IPOs that had received regulatory approval, another 560 are awaiting approval－or the equivalent of about another $5.7 billion in fees.

Estimates for fees were based on data compiled by Bloomberg showing an average size of $124 million for IPOs in the first half, with an average fee of 8.2 percent for underwriters.

Like booms and busts, a moratorium on IPOs is something that the Chinese securities industry has seen before. This is the ninth in the 24-year history of the market, according to the Xinhua News Agency.