After China-listed ECM volume hit a record in 2016, the CSRC implemented new regulations that shaped the 2017 market.
Regulations hamper overall volume
2017 marked another active year for China-listed ECM, reaching $140.9bn via 744 deals. Volume has generally grown over the last 4 years. From 2015 to 2016, issuance jumped 48% to a record high of $169.8bn (via 723 deals). However, overall A-shares volume dropped 17% from the 2016 record to $140.9bn in 2017, as markets reacted to shifting regulations.
Record activity for new listings
China has been one of the most active countries for new listings for many years and led globally in 2017. Last year, activity reached 416 new listings and raised $32.5bn. While volume saw substantial growth, up 31% from $24.8bn in 2016, activity doubled to reach the highest level in the last 20 years. This reflected a healthy China ECM market.
These new listings have benefited from reinforced government policies. They include shortening the average approval time from 3 years to 1.25 years in 2017, according to the China Securities Regulatory Commission (CSRC). Another such policy was IPO normalization, which aimed to eliminate the backlog by launching 4 to 8 new listings per week in 2017. The government’s efforts were successful; according to Dealogic data, new listings in China rapidly grew to an average of 7.7 deals launched per week in 2017 compared to 4.9 in 2016.
Shift in capital-raising methods
Not all regulations have promoted fast-paced growth. In 2016, China-listed ECM volume jumped thanks to private placements, which reached $134.5bn—or 79.2% of A-shares volume that year. Following the surge in February 2017, the CSRC placed restrictions on private placements, limiting deal size, frequency, and final price (which must be benchmarked on the day of issuance). The change saw private placement volume in China decline 39% year-on-year to $81.5bn (via 263 deals) in 2017.
Public companies looking to raise capital likely had to search for other methods. One such alternative is convertible bonds, which saw both volume and activity rocket more than 250% to $14.1bn via 40 deals in 2017 compared to 2016 figures ($3.2bn via 11 deals). The private placement of exchangeable bonds in China is also on an upward trend. As the regulation limiting private placements continues to be rolled out, markets will likely see further evidence of a shift in fundraising methods.
-Written by Vincent Li, Dealogic Research
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Data source: Dealogic, CSRC, as of January 24, 2018