China eases restrictions on flotations

Guilin Sanjin Pharmaceutical hopes to raise $133 million with its flotation.
One of the world’s hottest spots for raising capital is back in business.

Ten months after halting initial public offerings, or flotations, on Chinese bourses, the government has cleared the way for Guilin Sanjin Pharmaceutical, a maker of traditional Chinese medicines, to list on the Shenzhen exchange. The company plans to raise $133 million with the IPO, which offered subscriptions to retail investors Monday. The move is good news for global investors, said Jerry Lou, China strategist for Morgan Stanley. “Right now, the investment community is running out of choices. … Money is running out of targets,” he said. Global interest in China’s moves to reopen its IPO market underlines the growing importance of developing economies to world capital markets. The biggest IPO this year was last week’s listing of VisaNet in Brazil, which raised $4.27 billion on the Sao Paulo stock exchange. Before that, the year’s top IPO was China Zhongwang, which raised $1.2 billion when it listed on the Hong Kong stock exchange in April. The biggest IPO on Wall Street this year was the listing of Mead Johnson, maker of Enfamil baby food, which raised $828 million on the New York Stock Exchange in February. “Over time, the relevance of Wall Street will definitely decrease,” Lou said. “It used to be that Wall Street made the rules and everyone played by those rules. … After the financial crisis, I think you will see a multipolar financial world.” Global investors are looking for good news in the anemic IPO market. So far this year, global IPOs are down 85 percent compared with the same period last year, according to Thomson Reuters. Last year, top global IPOs were for credit card processor Visa and China Railway Construction, which raised $19.7 billion and $5.7 billion, respectively.

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Although the IPO market in China declined last year with the plunging stock markets, China led the world in IPOs, with 127 deals raising $17.9 billion, according to Ernst & Young. The Chinese government is easing restrictions on IPOs partly to give companies more access to capital in the wake of the financial crisis and China’s stimulus package. “China has a $4 trillion economy and has (public and private) loans out of $1 trillion,” Lou said. “Its loan book is out of balance.” A restart of IPOs is also essential if China is to position itself as a global financial center, which eventually will mean allowing foreign firms to list on Chinese bourses. Right now, foreign firms are not allowed to list on the Shanghai and Shenzhen stock exchanges. “Before they do that, they need to clear the pipeline of domestic firms,” Lou said.