• 

• WORLD STOCK MARKETS
• JANUARY 7, 2010

Shenzhen Exchange Tightens ChiNext Rules

SHANGHAI—In a move highlighting concerns over speculation, the Shenzhen Stock Exchange tightened the rules on how companies listing on the ChiNext start-up board may use extra funds from initial public offerings, many of which raised substantially more money than targeted.

The China Securities Regulatory Commission is also considering adjustments to the IPO-pricing mechanism in order to bring down the high valuations that have characterized recent listings and could contribute to an asset bubble.

Since the Shenzhen exchange opened ChiNext in late October to cater to the funding needs of start-up firms, most of the 36 listed companies have raised more than double the amount they originally targeted for their IPOs.

The Shenzhen exchange said Tuesday that such companies shouldn't use more than 20% of the additional IPO proceeds to supplement their working capital or to repay bank loans in a single year.

It also said the companies should gain shareholders' approval if they want to invest more than 50 million yuan ($7.3 million) or more than 20% of the additional IPO proceeds in a single project.

The exchange reiterated that companies should use the additional proceeds from their IPOs to fund their main businesses and not for high-risk investments, such as securities, derivatives or venture capital.

"There will be too much liquidity in the market if the ChiNext companies use their proceeds to invest in stocks," said Simon Wang, an analyst at Guoyuan Securities.

ChiNext IPO valuations have been high. When Guangzhou Improve Medical Instruments Co. had its share offering in December, its IPO priced at 108.7 times 2008 earnings. Guangzhou Improve raised 465 million yuan from the IPO, more than four times the 108.9 million yuan it initially sought.

The phenomenon isn't exclusive to ChiNext. Nearly all of the companies that have listed in China since late June, when a nine-month IPO moratorium ended, raised ample funds from robust share offerings that had high valuations.

A person familiar with the situation said last month that the country's securities regulator is considering ways to bring down excessively high IPO valuations and may adjust the IPO-pricing mechanism this year.

The regulator already has held several meetings with investment banks, soliciting industry opinion on the issue, the person said.

China changed its rules on initial public offerings before reopening the primary market in June, weakening its role in guiding IPO price-setting and giving market forces more influence over the process.

Previously, IPOs had typically been priced at relatively low levels because of the CSRC's intervention, leading to high volatility on trading debuts, characterized by an early surge in values and then followed by heavy profit-taking.

While the latest changes have helped tame such volatility, IPO supply is still strictly controlled by the regulator, leaving investors hungry for fresh equity and pushing IPO prices to high levels.

Analysts say the CSRC will be hard-pressed to find an effective solution so long as the regulator, and not the market, determines the level of supply.

—Wynne Wang

Argentina Drops 1.6%
On Central-Bank Spat

Stocks in Argentina declined as investors were spooked by a dispute over the future of Central Bank governor Martin Redrado.

Markets elsewhere in the Americas, and in Europe and Asia, were mostly higher.

Mr. Redrado clung to power after President Cristina Fernández on Wednesday asked him to resign, frustrated over delays in transferring some $6.6 billion of the central bank's $48 billion foreign exchange reserves to the Treasury to be able to make debt payments.

The Merval stock index declined 1.6% to 2362.46.

In a volatile day of trading in Europe, the pan-European Dow Jones Stoxx 600 index edged up 0.1% to 257.96.

In LONDON, the FTSE 100 index rose 0.1% to 5530.04. Retailer Marks & Spencer dropped 6.8%. The clothing retailer said comparable U.K. sales for the 13 weeks to Dec. 26 rose 0.8% from a year earlier, below consensus expectations of a 1.2% advance

In PARIS, the CAC-40 index rose 0.1% to 4017.67. Sodexo, the French catering-services group, gained 4% on better-than-expected sales results. Peugeot rose 6.4% after it was upgraded to "buy" from "neutral" at Bank of America Merrill Lynch.

Earlier in the trading day, Japanese shares advanced for a third consecutive session as exporters were boosted by weakness in the yen.

In TOKYO, Nikkei Stock Average of 225 companies climbed 0.5% to 10731.45. Canon rose 1.4%, Sony added 0.9%, and Toyota Motor gained 2.5% following upbeat U.S. sales figures for December. Nintendo surged 7.3% after it said sales of its popular Wii game console rebounded in December and would likely exceed three million units in the month.

Regional markets ended mostly higher. South Korea's Kospi added 0.9% to 1705.32 and Taiwan's Taipei Weighted index was up 1.4% to 8327.62. Hong Kong's Hang Seng Index increased 0.6% to 22416.67 and Australia's S&P/ASX 200 finished flat at 4921.4. China's Shanghai Composite fell 0.9% to 3254.22 amid concerns about inflation. Singapore's Straits Times Index was up 0.3% to 2930.49.

Rounding out the trading day, markets in the Americas rose.

In TORONTO, the S&P/TSX Composite Index rose 0.5%, to 11944.54, a 15-month high. Materials posted the biggest gain on broad buying in the sector. Barrick Gold rose 1.7% and Agnico-Eagle Mines added 2.2%, while fertilizer giant Potash Corp. of Saskatchewan rose 3.4% and Teck Resources increased 1.2%.

In MEXICO CITY, the IPC index ticked up 0.3% to 32830.16, a day after setting a record intraday high of 33073.71.