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China to Fight Exorbitant IPO Prices While Rolling out OTC equity market

04-18 14:42 Caijing
The CSRC is also stepping up efforts to launch the "new third board," a new over-the-counter (OTC) equity market, aiming to provide a new financing channel for small, unlisted firms, according to Guo.

Securities regulator in China reaffirmed resolution to tackle exorbitant prices in initial public offerings that are widely criticized for hurting the interests of small investors, as authorities move to improve financial regulations and take further reforms in the sector.

PE Ratios of 20 "Reasonable"

The reasonable average price-to-earnings ratio of new Chinese initial public offerings should be at around 20 times, Guo Shuqing, Chairman of the China Securities Regulatory Commission, reportedly told a working conference in Hubei Province on Tuesday.

The average P/E ratio of new Chinese shares issued in 2010 was 58, which means it takes an average of 58 years for investors to recoup investments in a company. The ratio has been declining ever since, at 40 in 2011, 30 in the first quarter and 20 so far in April this year, according to Guo.

"As for the excessive high P/E ratios for new shares, we must solve it," said Guo, adding that the market should be the one to set the pricing of new share sales.

Also on the same day, the official People's Daily's online news portal, after pricing its initial public offerings between 20.0-22.5 yuan per share, would see its P/E ratio at up to 51.89, based on 2011's earnings.

People's Daily Online is the first in a series of listings by state-run media companies in China as it tries to restructure them to better compete with commercial news portals such as Sina.

"New Third Board"

The CSRC is also stepping up efforts to launch the "new third board," a new over-the-counter (OTC) equity market, aiming to provide a new financing channel for small, unlisted firms, according to Guo.

The agency has submitted the final version of the plan and is still pending approval from the State Council, China's cabinet, the regulator said.

The OTC board is one of a series of recent measures by China's policy makers to improve regulation and deepen reforms of the IPO systems in the financial market.

When talking about the construction of a multi-level capital market system, Guo said that besides the "new third board," "We also hope to boost the regional equity transfer market."

Some small companies that are unqualified for a public listing could fund themselves via the transfer market, while floating their shares, Guo added.

His comments were made in a speech at the annual Hubei Province Capital Markets Construction Work Conference. He was also in the province for inspections of the construction of the "new third board", Chinese media reported.

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