China Re-opens Initial Public Offerings on Bourses

Following an almost ten month restriction on initial public offerings (IPO), on China’s bourses, the Chinese government has given the go-ahead for Guilin Sanjin Pharmaceuticals to list on the Shenzhen exchange. Primarily the manufacturer of traditional Chinese medicines, Guilin Sanjin Pharmaceuticals anticipates raising $133 million (910.8 million yuan) through the sale of 46 million shares, starting Monday 29 June. With global IPOs being down 85 percent year to date compared with the same period last year, this easing of restrictions is not only good news for the company, it is also seen as good news for global investors who are facing a shrinking pool of investment opportunities.

Guilin Sanjin Pharmaceuticals plans to use the capital raised through the IPO to upgrade the technology on its production lines, as well as to build a new storage and logistics center. The domestic market for traditional Chinese medicines is huge, and Guilin Sanjin Pharmaceuticals is well respected in this highly competitive market. Nevertheless, some are of the opinion that the IPO price of 19.80 yuan per share is too high, with estimates of 15 yuan to 18 yuan being considered to be more realistic.

New York-based financial institution Morgan Stanley’s strategist for China, Jerry Lou, has been quoted as saying that the relevance of Wall Street will decrease over time, with a “multipolar financial world” emerging from the global financial crisis. Certainly, the global interest generated by the reopening of IPOs China’s exchanges highlights the increasingly important role being played by developing economies in international capital markets.

The easing of restrictions on IPOs is seen by analysts as an essential step in China positioning itself as a global financial center, which may very well lead to foreign companies being given permission to list on China’s bourses. However, this is unlikely to happen until domestic applicants have been listed. Other Chinese companies currently awaiting approval for IPOs on the Shenzhen Stock Exchange include the Zhejiang Wanma Cable Company and Shenzhen Salubris Pharmaceuticals.