China’s domestic IPOs raise $4.5bn

The re-start of domestic listings has kept regulators busy.

Public listings in China raised 27.2 billion RMB (€3.3 billion; $4.5 billion) in January, a total representing 43 IPOs, according to local reports.

Since December, regulators have approved 52 companies for a public listing, signaling the end of a 15-month long freeze that has frustrated private equity and venture capital firms with IPO exit plans. 

The lack of divestments also impacted on fundraising. China-focused US dollar funds continued a multi-year slide in 2013, raising only $2.15 billion, down 75 percent year-on-year, according to Private Equity International's Research & Analytics division. Venture capital firms raised just $1.97 billion for China, a 50 percent annual drop, according to from DJX Venture Source and reported earlier in PEI

The reopening of the IPO markets have raised optimism that 2014 will be a year of divestments in the PRC. However, new listings are under tight scrutiny from regulators, who have already taken steps to crackdown on overpriced IPOs.

Earlier this month, the China Securities Regulatory Commission inspected dozens of underwriters and financial institutions to ensure they were not inflating IPO share offer prices, according to a report in Caixin. 

Officials also stopped six companies from listing “on the grounds that their price-to-earnings ratios were too high relative to comparable companies' in the secondary market”.

One of the companies, Jiangsu Aosaikang Pharmaceutical, priced its IPO at 67 times 2012 earnings, according to the South China Morning Post.

“China's securities market has not established a culture of rational investment,” according to a notice by the Shenzhen Stock Exchange reported in China Daily. “Some small investors are experiencing big losses due to blindly buying at high prices during IPOs.”

According to Derek Sulger, partner at Shanghai-based Lunar Capital, the biggest risk for private equity in 2014 is the re-opening of China's IPO market, which could send valuations soaring.

“We fear momentum in China,” he said, speaking at a recent industry event. “If 30 IPOs are hot, the index rockets and retail decides equities hot, then that’s a challenge for private equity.