Overseas IPO rules in spotlight

The nation's top securities regulator is in talks with the Ministry of Commerce and the State Administration of Foreign Exchange to renew the regulation on indirect overseas listing.

Indirect overseas listing means that a Chinese company applies for IPO issuance in overseas exchanges through launching a subsidiary in that area or country.

"Listing overseas is an important way for enterprises to use foreign capital, and the commission will continue to encourage Chinese companies that can satisfy IPO application requirements to go public in foreign markets," a CSRC spokesman said on Friday.

In December, the top securities regulator announced the removal of the requirements for minimum net assets, net income, and the amount of raised funds for companies to be listed outside the mainland market. Meanwhile, the procedures for administrative examination and approval have been simplified.

Market observers said this would ease the pressure on more than 600 enterprises still awaiting IPO approval.

In Hong Kong, mainland enterprises preparing for listing in the H-share market should first get approval from the CSRC and then await examination from Hong Kong Exchanges and Clearing Ltd, which is also a relatively long process.

Therefore, some companies, especially small businesses from the mainland, prefer to set up subsidiaries in Hong Kong, called "red chips", and transfer capital there to meet the requirement of the Hong Kong securities regulator.

So far, there are restrictions on mainland enterprises issuing IPOs as "red chips", including foreign exchange limits.

"The scale of red chips has been so large, and needs to be regulated in the future," the CSRC official said.

In May, China Galaxy Securities Co Ltd and Sinopec Engineering (Group) Co Ltd completed IPOs in Hong Kong, raising HK$8.3 billion ($1.07 billion) and HK$13.7 billion, respectively. Sinopec Engineering was the largest IPO in Hong Kong in the first half of this year.

The move is a signal that the door for Chinese companies to list outside the mainland market may be reopened in the coming months.

Until Thursday, 619 companies on the mainland IPO waiting list have handed in self-examination reports to the CSRC. The second round of the securities watchdog's spot check for pre-IPO companies' financial conditions will start on Saturday.

On Friday, Guangdong Xindadi Biotechnology Co Ltd and Shanxi Tanon Solar Co Ltd got punishment notification from the CSRC over inflated profit figures in their financial reports before going public.

Nanjing Securities and Minsheng Securities, as the sponsoring institutions, will also be punished.