The move by nearly a score of IPO hopefuls, including green tech firm Polygree and wireless solution provider Lierda, is being seen as a positive by some investors who expect more market-oriented price-setting on the Beijing bourse.
Unlike the Shanghai and Shenzhen stock exchanges, the Beijing Stock Exchange requires that IPO candidates set a floor price for their share sales to protect the interests of existing shareholders. However, this requirement has led to depressed trading on the Beijing Stock Exchange, forcing companies to be more practical in their IPO fundraising plans.
For example, Polygree has lowered its minimum IPO offer price to its book value of 5.79 yuan per share, 64% lower than the floor set in June. Lierda has also reduced its IPO price floor to nearly 80% less than its previous price, close to its book value of 1.72 yuan per share. Other companies that have reduced IPO price expectations include Shandong Inov Polyurethane Co, Xinganjiang Pharma, and Sichuan Kezhi Civil Defense Equipment Co.
Beijing Stock Exchange's benchmark index, the BSE 50, trades at 21 times earnings. In contrast, Shanghai's tech-heavy STAR Market trades at a price-to-earning ratio of 45, while Shenzhen's start-up board, ChiNext, trades at an earning multiple of 39.
"For investors on the Beijing bourse, this is really good news as lower IPO prices create bigger room for profit after the IPO shares begin trading,"
said Zhou Yunnan, founder of NS Capital Ltd. The view is echoed by SWS Research, which said in a note: "pricing power is given to the market. Superior companies would be selected, while the inferior would be eliminated."