Gradual Change Of IPO Market Pricing Reform On Gem: Moderately Relaxing Quotation Constraints And Increasing Game Space Between Buyers And Sellers

In the past month, the A-share market under the registration system has frequently produced "three low" new shares with low issuing price, low P / E ratio and low fund-raising amount. Market participants have questioned whether the IPO pricing mechanism is "out of order".

"Some offline investors pay more attention to strategy than to research, and are shortlisted for" group bidding "to interfere with the issuance order For the problems existing in the issuance of new shares under the registration system, the CSRC said.

Therefore, on August 6, China Securities Regulatory Commission (CSRC) intends to amend some provisions of the special provisions on the issuance and underwriting of initial public offerings of securities on the gem (hereinafter referred to as the "special provisions") and solicit public opinions from the public. Specifically, if the future IPO price exceeds the median and weighted average of offline investors' quotation after excluding the highest quotation, the lower of the median and weighted average of public offering fund, social security fund, pension fund, enterprise annuity fund and insurance fund after excluding the highest quotation, or it does not need to be compulsorily linked with the subscription schedule and the number of special announcements of investment risks.

So, what changes will this policy effort of regulators cause in the market?

On August 6, the China Securities Regulatory Commission (CSRC) proposed to amend some provisions of the special provisions on the issuance and underwriting of initial public offerings on the growth enterprise market (GEM) and solicit public opinions from the public. Visual China

The game between the buyer and the seller increased

On the whole, the revision mainly focuses on the "four number constraint" in the process of IPO pricing.

The so-called "four number constraint" refers to that the issuing price determined by the issuer and the lead underwriter exceeds the median and weighted average of offline investors' quotation after excluding the highest quotation, and the lower of the median and weighted average quotation of public funds, social security funds, pension funds, enterprise annuity funds and insurance funds after excluding the highest quotation, Special announcement on investment risk shall be issued.

Previously, the "special provisions" required that if the IPO price exceeds the "four numbers" ratio by no more than 10%, a special announcement on investment risk should be issued at least five working days before online subscription; If the proportion exceeds 10% and no more than 20%, the special announcement of investment risk shall be issued at least 10 working days before online subscription; If the proportion exceeds 20%, the special announcement of investment risk shall be issued at least three times within 15 working days before online subscription.

In addition, the upper limit of the issuing price range determined by the issuer and the lead underwriter shall not be higher than 120% of the lower limit of the range.

However, in the revised "special provisions", the subscription schedule and the number of special announcements on investment risks after the above-mentioned IPO pricing exceeds the "four numbers". It is only required that the issuer and the lead underwriter shall issue a special announcement of investment risk before the online subscription after the new share price exceeds the lower value of "four numbers", which shall explain the rationality of pricing in detail and remind investors to pay attention to investment risks. In addition, the restrictions on the cumulative issuance price range have also been cancelled, and the upper limit of the range of new shares issuance price is no longer mandatory to be higher than 120% of the lower limit of the range.

"This amendment no longer requires that the ratio of offering price exceeding the quotation of relevant investors be linked with the subscription arrangement and the number of special announcements of investors' risks. It can solve the problem of too long issuance period when the issuance price exceeds a certain standard, which will help to speed up the issuance rhythm and improve the issuance efficiency." Sang Shidong, a partner of Beijing Deheng Law Firm, said that on the other hand, the rule that "the upper limit of the offering price should not be higher than 120% of the lower limit of the range" should be cancelled. The range of IPO inquiry price will be larger, and the investors participating in the inquiry will have more choices and the quotation gap will be larger.

Wang Jiyue, a senior investment banker, also said that the revision reflected the regulatory concern on the pricing of new shares under the registration system, "it will indeed increase the space for the game, and the quotation may not be so centralized. Quotation agencies do not have to ask each other about the lower limit

IPO market pricing limitations to be broken

In fact, the phenomenon of "group bidding" of new shares under the current registration system may be caused by multiple factors.

"Marketization is the core logic of IPO pricing system reform, but there are still some limitations in current pricing, which are mainly reflected in the efficiency loss of" new shares unbeaten "and the convergence motivation under the" buyer's market. " Deppon securities strategy analyst Wu Kaida pointed out.

Huatai Securities also said that the rich short-term returns of new shares make investors pay more attention to how to allocate rather than independently study the real value of the enterprise. The strong motivation for allocation is superimposed on the current pricing upper limit of "hard rejection of high quotation" and "the lower of four numbers", which leads to the quotation tends to be centralized and moves downward. In order to change the current situation of investors' pricing concentration and weakening the research, and really give full play to the pricing ability of professional institutional investors, the existing pricing system needs to be further optimized.

"Overall, I still feel that the revision is not strong enough. What I wanted to see was to directly cancel the" four number constraint. " In the interview, for the revision of the "special provisions", the person in charge of investment banks of small and medium-sized securities companies in Beijing said. Wang Jiyue, a senior investment banker, also said that the revision only opened the lower limit of the "four numbers" range, did not change the overall trend of new share pricing, but was more cautious.

"With the restriction of" four numbers ", the buyer's organization should consider that it should not be quoted too high. After all, what we are looking for is the opportunity to get the allocation, not to explore the enterprise value. In this case, it is certainly more important to find a pricing center to ensure the winning bid." There are buyers of institutional investors said.

China Merchants Securities has previously called for the optimization of the new share pricing system under the registration system, so as to increase the space for each market entity to compete with each other. It said that the formation mechanism of the issue price should be optimized according to the latest market situation, and it was suggested that the regulation of "excluding 10% of the highest quotation" should be removed, and the sponsor institution should be allowed to break through the potential restriction of "four numbers" and independently negotiate with the issuer to determine the issue price through sufficient market inquiry on the basis of certain subscription times and pricing coverage.

However, some people from securities companies and investment banks told reporters of the 21st century economic report that the "four number restriction" gap has been opened after the amendment of the "special provisions".

"In the past, if the pricing of new shares exceeded the" four numbers ", it was necessary to postpone the issuance, but in fact there was a certain window to guide the issuance. After the revision of the future rules, we can break through the lower value constraint of the "four numbers" on the ground after the risk is indicated and the rationality is explained. From the institutional level, it has made great progress. " There are senior investment banks in Beijing said.

In addition, the investment bank also pointed out that if the final price of new shares or the median value of the price range exceeded the lower value of "four numbers", the issuance would need to be postponed for at least one week《 After the amendment of the special provisions, there is no need to postpone the issuance of individual stocks whose prices exceed the lower value of the "four numbers", which improves the efficiency of new share issuance.

It is worth mentioning that the revision of the "special provisions" did not eliminate the 10% of the highest quotation. Sang Shidong pointed out that in order to solve the problem that the IPO price of enterprises is too high, China introduced the system of eliminating the highest quotation when carrying out the system reform of new share issuance in 2013, specifically, "the issuer and the lead underwriter shall exclude the part with the highest quotation in the total amount of subscription in advance, The rejected subscription amount shall not be less than 10% of the total amount of subscription, and then the issue price shall be determined through negotiation according to the remaining quotation and the subscription situation. The rejected subscription shares shall not participate in offline allotment ".

"If the rule of excluding the highest offering price is removed, the problem of IPO offering price being too high will reappear." In addition, relaxing the price range of inquiry in the newly revised content will help to increase the quotation gap, enhance the game between the issuer and the bidder, and may solve the problem that the offering price is concentrated at the bottom of the range to a certain extent.