China regulator urges institutional investors to price IPO ……

China’s securities regulators said institutional investors should be prudent and responsible in the IPO book building process and price the shares more rationally, amid rising concerns about the negative impact of blockbuster tech IPOs on the liquidity conditions of the Chinese stock market.   

The China Securities Regulatory Commission (CSRC) summoned more than 200 fund houses, brokerages and insurers in Beijing on Thursday, urging them to submit price quotations prudently in the book building, the newspaper Securities Daily reported on Friday.

Institutional investors who participate in IPO book building were also asked to conduct "independent, in-depth, and objective" research and submit their research reports to CSRC for review.

The country is luring tech companies to list in the domestic market. High-tech firms planning to float in China include Alibaba, Xiaomi, Baidu and JD.com.

How to reasonably price IPO shares for the tech giants poses a challenge for Chinese underwriters and investors, as the CSRC has enforced an informal cap on price-to-earnings ratios of 23 in recent years.

The newspaper said a CSRC official, who was not identified, cited the poor performance of a slew of stocks following their Hong Kong IPOs, including Ping An Healthcare and Technology Co Zhongan Online P&C Insurance Co, and China Literature Ltd.

The poor performance “contrasts with the red-hot demand during the IPO subscription period, and has triggered investor concern over valuation bubbles of new economy companies, and this is an alarm bell for us," said the CSRC official.