China's stock market watchdog on Friday proposed a slew of changes in rules for initial public offerings aimed at promoting listings of high-quality companies.
The proposed rules require firms planning IPOs to have three straight years of profits, at least 30 million yuan ($3.7 million) in combined net profit in the past three years, and a minimum 300 million yuan in total revenues over the period.
The China Securities Regulatory Commission is seeking public comment on the proposals.
China's current regulations only generally require IPO firms to have an ability to ensure sustained profitability and to be in good financial condition.
"An amendment of the rules is aimed at ensuring share issuance and listings of large-scale and high-quality companies," the proposed rules, sent to Reuters by the commission, said.
The proposed rules also included other requirements on aspects such as information disclosure, corporate connected transactions and rights issues.
They are open to public feedback until May 14, and a final version will be formally promulgated shortly, the stock regulator said a separate statement sent to Reuters.
Chinese investors have complained that they are deprived of the right to enjoy part of the outcome of China's surging economy, which grew 10.2 percent in the first quarter from a year earlier, because quality firms have flocked for years to more transparent, liquid markets both abroad and in Hong Kong.
Hong Kong -- a Special Administrative Region of China with a financial framework separate from that of the mainland -- is the listing home of most high-quality Chinese firms, such as China Construction Bank Corp., its top property lender and Bank of Communications, the fifth largest lender."
CAPITAL RAISING TO RESUME
The proposed rules will also pave the way for China to allow its companies, such as Air China Co. Ltd., to return home to raise capital on the domestic Shanghai and Shenzhen stock exchanges, ending a year-long suspension.
The halt was imposed in May 2005 amid painstaking reforms to convert $250 billion in non-traded Chinese state shares in listed companies into regular traded shares, which had triggered fears of a flood of new shares onto the market and caused a market slump.
China's key stock index <.SSEC> has rallied, however, and ended up 1.66 percent on Friday at 1,440.223 points, its highest close in 19 months. It has jumped 24 percent so far this year, with bullish sentiment allowing more firms to float shares on the domestic bourses.
Brokers estimate an IPO resumption could flood the markets with at least 100 billion yuan worth of new shares in a few months due to a long waiting list.
Industry leaders, including top oil firm PetroChina Corp., top alumina producer Aluminum Corp. of China Ltd. and Bank of Communications, have plans to list yuan-denominated A shares on the Shanghai stock exchange.
Top cellular carrier China Mobile (Hong Kong) Ltd. and offshore oil producer CNOOC Ltd. are among the firms pondering raising cash via Chinese Depositary Receipts (CDRs), modelled after American Depositary Receipts.
But brokers say Air China, the country's most valuable airline, is likely to be first because it plans to sell stock through private placements, a fund-raising that is not likely to have much market impact as it does not drain liquidity.
(Photo: Baidu; the head office of China Securities Regulatory Commission)