Chinese Banks, Foreign Markets to Gain From China Lifting IPO Ban

TAIPEI ( TheStreet) -- -- China has lifted a temporary ban on new initial public offerings, bringing what could be hundreds of superstar companies into the country's otherwise sickly stock markets this year.

That's good for China. Its banks especially have been lining up to go public and will attract particular attention. A new wave of strong listings from any sector will make investors feel better about the country's capital markets and the top onshore IPOs will repeat quickly on stronger exchanges such as those in Hong Kong and New York.

After the one-year ban, China will allow IPOs again to bring life back to the country's moribund, stock markets. Scrapping the ban came weeks after Chinese leaders pledged IPO procedural reforms and vowed to give the market a stronger role in its economic overhaul ambitions.

The China Securities Regulatory Commission had already approved 11 companies just this month, China's official Xinhua News Agency said Jan. 3. PricewaterhouseCoopers expects 300 IPOs for a total of 250 billion yuan ($41.2 billion). That would be a record, says the consultancy that services IPOs.

More than 700 companies had lined up for IPO approval during the suspension, Xinhua adds, as the Chinese regulator had put a hold on listings to "toughen measures against the fraud and misrepresentations that beset Chinese stock markets."

Chinese regulators toughened up in November with a reform that PwC calls a major step towards a registration system for IPOs. That system would lay "the foundation for the future development of capital markets," its report says.

Chinese mid-tier banks are among the most likely to want IPOs this year, says Lorraine Tan, equity research director with S&P Capital IQ. The country's monetary authority is pushing "off-balance sheet" assets to get on paper, she says, and banks face generally tighter liquidity. "We think there may be a rush by the banks to raise capital -- especially as they may need to meet regulatory requirements or risk having growth curbed."

Banks may feel the pressure but won't be the only ones in the queue for IPOs, which though legal again are still subject to case-by-case approval.

"We expect that with an estimated 750 companies waiting to IPO in China, they represent a broad spectrum of sectors across the Chinese economy," says Jay Jacobs, research analyst with Global X Management in New York.

Listings by superstar Chinese firms against the backdrop of increasing foreign investor access to China's A-shares will make offshore markets pale, but just in the short term. History shows that the companies will list as well in Hong Kong or New York -- if they're not on some offshore exchange already.

Let's look at banks again. Bank of China (BACHY), Agricultural Bank of China (ACGBY) and the Industrial and Commercial Bank of China (IDCBY) all listed quickly in the more stable, transparent and internationally accessible bourse in Hong Kong as they made mammoth IPOs between 2006 and 2010. Each bank also trades American depositary receipts.

"The opening up of (China) A-share listings could reduce the urgency in listing outside China for some companies, but I still think that most companies are still likely to be keen to list both onshore and offshore," says Tan of Capital IQ.

Last year's IPO ban already sent some Chinese firms packing, PwC's Jan. 2 report says. They withdrew IPO applications in favor of other capital markets or other funding sources, shaving the waiting list by 44.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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