Zhou Junsheng: IPO Pricing Should Establish A Rigid Constraint Mechanism

The head of the securities and Futures Commission said in November 9th that the recent increase in stock market volatility was not the result of IPO expansion.

But the commitment to further reform the current IPO production is mainly focused on how to improve the quality of information disclosure and improve the management of IPO.

A stock market IPO restart over the past two years, IPO has seen a great leap forward, whether it is the number of IPO households or funds raised through IPO, have created a historical record.

As the IPO was restarted, the SFC focused on "marketization", so it was regarded as a fruit of "marketization".

However, from the current situation, this "marketization" is only reflected in the determination of IPO pricing. Issuers can determine the issuing price arbitrarily according to the market recognition. As the current IPO market is largely subject to the manipulation of sponsors and large institutions, the issue price is generally high, resulting in the IPO price far from the actual value of the company. After the listing, it broke rapidly and dragged down the whole two tier market.

Obviously, it is hard to say that the fluctuation of stock market has nothing to do with the expansion of IPO.

Since the implementation of tight monetary policy, there is a general shortage of corporate funds. This has also made IPO a strong reason for promoting IPO financing.

However, the "marketization" of IPO pricing makes the valuable stock market idle by some companies that are lucky enough to squeeze into the IPO gate.

In terms of growth enterprise market, from October 2009 to early November this year, a total of 275 companies realized IPO and went public. The total fund-raising was 194 billion 6 million 500 thousand yuan, 126 billion 750 million 190 thousand yuan more than the planned 67 billion 256 million 310 thousand yuan, and the proportion of over raising was as high as 188.46%.

This is a painful waste of resources both for the stock market and for the whole society.

The reason for this situation lies mainly in the fact that the management departments have a wrong understanding of the difference between the positioning of the stock market and the two tier market, and look at the mixture of the two markets, thus leading to speculative speculation that should have only appeared in the two tier market.

The share price of the two tier market is mainly due to the popularity of the market. When speculative speculation is prevailing, it is easy to generate price bubbles and make the share price deviate from the actual value of the company.

If the pricing of IPO is also determined by market sentiment, then the stock will deviate from the actual value of the company when it is issued, and stifle the hype space that should exist in the two tier market.

Therefore, for the IPO of the A share market, the most important reform is to abandon the superstition of the so-called "marketization" pricing and establish a rigid binding mechanism for IPO.

Why does an enterprise need to carry out IPO? Simply because the company needs capital, which is the same reason that an enterprise borrows money from a bank.

However, when an enterprise borrows from a bank, the bank must strictly examine its investment projects. How much money does the project require, the bank can only provide it with much capital, or even provide loans in installments and installments, rather than borrowing more than the actual demand.

The bank is based on a simple truth, that is, to ensure the safety of credit funds.

In the current IPO, although the company also needs to provide investment projects, the pricing of "marketization" makes it impossible to make investment commitments in the prospectus.

This is actually a look at the stock market as a market that can give up investment safety. Obviously, this is a serious mistake in market management.

Nowadays, there are many doubts about the investment projects of the issuing companies in the market. It is suspected that they are fraudulent. However, if they consider the deviation of their fund-raising and commitment projects, such doubts are actually very pale, because these investment projects are, in a way, the pretence of issuing companies to finance, and on the basis of "marketization" pricing, the issuing companies are doing justice in this way.

In view of the confusion in the pricing of IPO, some people now propose to restore the "window guidance" that the SFC once implemented.

The "window guidance" reflects the idea of administrative power more often, not only contrary to the openness of the capital market, but also easily generated behind the scenes trading between power and issuers.

The establishment of a rigid constraint mechanism for IPO pricing is to set up a system that is open and must be observed by every issuing company.

To put it simply, a company must raise funds in line with investment projects like bank credit, and determine IPO pricing on this basis. It can even raise funds in phases according to the investment period of the project, which is to consider the use of the "stock issuing" mode. Only after the early acceptance of the project proceeds and dividends to investors can the subsequent issuance be carried out.

This rigid constraint mechanism on pricing is not against the IPO's "marketization" principle, and it can effectively curb the impulsive impulse of some enterprises to become stronger and stronger. It can also ensure that the limited stock market funds can be used to the real needs of the real economy, and to a great extent alleviate the pressure of the two level market, so that the whole capital market can achieve a virtuous circle.