Over the years, the red line of 23 times new share issuance issued by the regulators has curbed the occurrence of “three highs” to a certain extent, but at the same time, it has also caused insufficient fund-raising of many new share companies in urgent need of funds. The implementation of the latest new rules on inquiry for new share issuance obviously solves this problem, but interestingly, The “three highs” phenomenon, which has not been seen for many years, is on the rise again. Among the 45 new stock companies issued and listed in December 2021 alone, 31 companies have over raised, accounting for 68.89%.
Recently, the phenomenon of over raising and high price issuance has reappeared in the process of new share issuance. On the one hand, it is likely that there are still some loopholes in the new inquiry regulations, and on the other hand, it does not rule out the promotion of interest groups, such as issuers, sponsors, underwriters, etc. The over raising of new shares not only allows the issuer to have more funds to finance, but also allows the sponsor to obtain more issuance fees due to the over raising. It is worth being vigilant that the “three highs” phenomenon of new share issuance has led to a “break” in the share price of many new shares after they were listed, which has completely locked up a large number of secondary market investors. Whether it is normal is still controversial. In addition, how to eliminate the grey interest chain existing in the new share issuance link, we also expect the regulators to introduce the corresponding management system.
Recently, the phenomenon of “three highs” (high price, high P / E ratio and high fund-raising) of A-share IPO has surged again, and there are not a few new shares listed, that is, the “breaking” of new shares. Behind this phenomenon, it not only reflects that some inquiry institutions lack rationality in the quotation of new shares at the inquiry stage, but also the relevant beneficiary groups have their own thoughts: the target company can raise more funds for financial management, Securities firms and investment banks can earn more underwriting and recommendation fees.
As for how to effectively use the over raised funds, insiders suggest that the over raised funds of new share companies can be allowed to be used for repurchase in rules. Once the restrictions on social public shares are touched, the company can be allowed to use the capital reserve to expand shares and then repurchase. Of course, the company can also be allowed to use the over raised funds to subscribe for the public offline strategic placement fund, Let idle funds support IPO Financing of more companies through fund channels.
after the implementation of the new inquiry regulations
the proportion of over raised new shares increased month by month
On December 31, Huitong group was listed on the main board of Shanghai Stock Exchange. Its listing finally increased the number of IPOs in the A-share market to 523 in 2021 (excluding China Energy Engineering Corporation Limited(601868) of share exchange absorption and merger of Gezhouba), with a total annual fund-raising amount of 543.773 billion yuan. In terms of the number of issuers and total fund-raising, they both hit a record high.
In view of the fact that there are still hundreds of IPO applications in the current market under review and the background that the registration system is likely to be implemented in the whole market in 2022, Wang Jiyue, a senior investment banker, judges that the number of IPOs and total fund-raising in the A-share market will remain high in 2022.
It is worth mentioning that although the IPO is completed in 2021, the different landing time points make a great difference in the fund-raising situation among the IPO companies. For example, some companies have a fund-raising gap of 76.88%, the issuance price of 1.55 yuan is the lowest in the history of the gem, and some have an over raised proportion of 664.59%, The issuance price of 557.8 yuan is the highest in the history of issuing A-share new shares.
In terms of 523 IPO companies issued and listed in 2021, there are 108 over raised companies, accounting for 20.65%. Among the 385 new shares before the implementation of the new inquiry rules on September 18, only 45 companies were over raised, accounting for 11.69%, while 63 of the 138 new shares after the implementation of the new inquiry rules were over raised, accounting for 45.65%.
If we further analyze the over raising situation in each month after the implementation of the new inquiry rules, we can find that it shows a very obvious trend of increasing month by month, from more than 30% to more than 60% (among the 45 companies that completed IPO in December, 31 companies realized over raising, accounting for 68.89%). From batch “floor price” issuance to “three high” phenomenon, the implementation of new inquiry regulations has become a “watershed” of polarization in 2021 new share issuance.
In the statistics, the reporter of red weekly found that before the implementation of the new inquiry rules, the “three high” IPO issuance cases with high price, high P / E ratio and high fund-raising amount were still very rare. In order to curb the “three high” phenomenon in the process of IPO, the regulations of “high proportion elimination”, “four number restriction” and “proportional placement” established in the early years, So that the inquiry institutions do not dare to quote too outrageously, which objectively leads to the fact that many new shares have been trading for many consecutive days after listing. The huge profits of “playing new” make many inquiry institutions take risks and “hold together” to lower the quotation. Such guidance directly leads to the lack of fund-raising of many new share companies in urgent need of financing.
Chen Shaoxia, general manager of Wuxi fangwan Investment Co., Ltd., told red weekly, “in this case, the priority of many institutions is not to explore the value of the enterprise, but how to ensure the placement.”
Or it is this kind of inquiry institutions that “hold together” to lower the price in the inquiry process of new shares, which leads to great price fluctuations before and after the listing of new shares and interferes with the normal market transactions. In August 2021, the China Securities Association and the Shanghai and Shenzhen stock exchange conducted an on-site inspection on a small number of offline investors’ abnormal situations such as frequent price changes, large price changes and continuous and highly consistent quotation in the quotation process. The result of the inspection was that a number of illegal institutions were punished accordingly.
In order to curb the malicious inquiry behavior of institutions, the new inquiry regulations were officially implemented on September 18, 2021, adjusting the high price exclusion ratio from “no less than 10%” to “no more than 3% and no less than 1%”. At the same time, the demand for delayed issuance when the pricing of new shares exceeded the “lower of the four values” was cancelled. However, it is surprising that although the revised inquiry mechanism alleviates the shortage of new share fundraising, it also objectively opens up the lifting space of the new share pricing center, which has led to the popularity of over raising in the recent IPO market. The over raising of more than 60% of new shares in December is a good portrayal.
After the implementation of the new regulations on inquiry, there have been many times that the placing objects that are not shortlisted at low prices are more than those that are eliminated at high prices. Taking Hemai shares as an example, a total of 7949 institutional investors participated in the IPO inquiry. Finally, 1679 participants were excluded at a low price and only 134 participants were excluded at a high price. “Now the difficulty of quotation has increased again. It turns out that everyone’s mind is very easy to guess. It’s just that in order to ensure winning the lot under the background of high price elimination, try to lower the price. Now many people dare to quote high prices, and the low price area is easy to be eliminated.” An unnamed person in charge of Shanghai public fund said.
For the phenomenon that institutional quotation is too arbitrary in the current inquiry process of new shares in the primary market, Wang Jiyue suggested that the “excluding 1%” in the new regulations can be changed to “excluding 30% exceeding the median quotation of all institutions”. In this case, the effective quotation range can be more reasonable, which can not only make independent quotation, but also ensure the elimination of extreme quotation. Chen Shaoxia suggested that the lock period and lock proportion should be adjusted. “Without the constraint of lock period, it is difficult to eliminate the blind quotation of inquiry institutions. After all, once the market is opened, it can complete short-term profits and sell quickly.”
after the implementation of the new inquiry regulations
new shares issued by several “three highs” quickly “break”
Or due to the imperfection of the new inquiry rules, many institutions quote too freely in the inquiry stage of new shares. Although the excessive pricing meets the financing needs of the issuer, it also lays the groundwork for the possible decline of the listed share price. Statistics show that among the 523 new shares listed in 2021, the latest closing price of 49 companies is below the issuing price. Among these “broken” companies, 21 companies landed in the capital market after September 18, accounting for 42.86%, of which 15 were over raised.
In addition, statistics also show that among the 22 companies whose share prices “broke” on the first day of IPO in 2021, 14 completed the issuance in the form of over raising. Among the companies that “broke” on the first day after over raising, the company with the highest P / E ratio is Nanmo biology, with an P / E ratio of 201.59 times, while a medical company with the lowest P / E ratio of 37.15 times is significantly higher than the average p / E ratio of 24.96 times on the same day of its medical device sector.
Chen Shaoxia said, “the rise in the proportion of broken shares shows that the quotation behavior of a considerable number of inquiry institutions is not rational.” Wang Qiang, senior industry research director of Tonglian data, also believes that the “break” of new shares on the first day is caused by a series of factors, such as the lack of marginal liquidity and the high issuance price of many new shares. There is also inquiry behind it, and the new deal has played a certain role in fuelling the fire.
The registration system is implemented for the issuance of new shares on the science and innovation board, the gem and the Beijing stock exchange. This change breaks the “iron law” of 23 times P / E ratio established under the approval system to curb the “three high” issuance of new shares. According to the original intention of formulating the regulatory rules, the inquiry system arrangement under the registration system should form a market-oriented price, and the price quoted by the main bodies of inquiry institutions should tend to a more real enterprise value, But in fact, driven by interests, the carelessness and objectivity of inquiry institutions in the inquiry stage, as well as the inaccuracy of information conveyed by listed financing enterprises, directly led to some companies issuing at unreasonable prices, and the final result was the “breaking” of stock prices.
Taking a listed medical company as an example, when it was listed, it was expected to raise 1.204 billion yuan, but the actual fund-raising was as high as 3.734 billion yuan, over raising 2.52 billion yuan, with an over raising proportion of 209.32%. In addition to the possible high pricing during the issuance of new shares, the unstable performance of the company during the reporting period and the “emphasis on marketing and light on R & D” in the operation are also one of the important reasons for the “breaking” caused by the investors in the secondary market. Looking at the company’s financial data over the years, although the net profit attributable to the parent company from 2018 to 2020 reached 66.227 million yuan, 124 million yuan and 424 million yuan respectively, with a year-on-year growth of 37.84%, 86.76% and 242.76%, the company’s net profit continued to decline by 28.96%, 20.97% and 8.13% in the first three reporting periods of 2021. At the same time, the statistics also show that the sales expense rates of the company’s three quarterly reports from 2018 to 2021 were 25.23%, 25.63%, 22.04% and 21.41% respectively, which was significantly higher than the overall sales expense rates of 16.72%, 17.92%, 13.36% and 12.61% of the medical device sector in the same period. In addition, the R & D expense rates of the last three full years and the three quarterly reports of 2021 were 1.1%, 1.1%, 1.86% and 2.71% respectively, while the overall R & D expense rates of the plates in the same period were 6.78%, 7.39%, 6.37% and 6.02%.
In fact, the increase of the phenomenon of “breaking” in the listing of new companies is not only related to some problems in the fundamentals of enterprises, but also related to the excessive beautification of the prospectus issued by new companies. In order to ensure that the projects they sponsor will pass the meeting smoothly, the sponsor will often help enterprises beautify the prospectus. After all, a bright prospectus is easier to pass the meeting and get the recognition of investors. For the violation of sponsors, there are not a few punished institutions in recent years, such as Ping An, CICC, Haitong, galaxy, etc.
With regard to the excessive beautification of the contents of the prospectus, a partner of a law firm specializing in IPO business told the reporter of red weekly that under the situation of the new securities law, financial fraud should bear legal responsibility, so most companies are no longer afraid to risk financial fraud, but the possibility of appropriate whitewashing still exists, such as cross-year adjustment of some expenses The purpose of not disclosing some bad information is to make their fundamentals better, so as to achieve a better pricing when issuing and listing. After all, an enterprise with declining profits or many negative problems is not easy to pass, and the inquiry institutions in the primary market will also reduce the quotation, and the investors in the secondary market will not be optimistic after listing.
there is a grey interest chain behind IPO over raising
Behind the over issuance of new shares, there are actually interest groups from all parties, such as underwriters and sponsors. Although underwriters and sponsors perform their duties as independent institutions in the whole IPO process, their interests are highly consistent with those of the issuer. After all, securities companies acting as underwriters and sponsors of IPO companies can obtain corresponding proportional underwriting and recommendation fees from IPO companies. When the IPO companies raise more funds, the Underwriters The more benefits the sponsor will get.
In addition, due to the high success rate of the meeting, it can also add a certain weight to its own competition in the same industry. Although the company to be listed as an issuer will have its own ideas on the issue pricing, it will listen more to the opinions of underwriters and sponsors because it is not familiar with the capital market, and will not object too much to the possibility of obtaining more raised funds. After all, the listed company is a direct stakeholder, and whether the issue is successful or not and the price is high or low, It is directly related to the fund-raising amount of the company, that is, the wealth effect. In particular, many original shareholders of the new stock company are also willing to raise funds at a higher price, so as to maximize their wealth.
Similarly, the underwriter (usually the sponsor itself), as an intermediary, will strive to “package” the new stock company in order to ensure its own interests. It may not only attract the attention of investors by publishing favorable research reports frequently by its R & D team, but also affect the basic judgment of the inquiry institution on the fund-raising company by issuing inquiry reports.
Take Shenzhen Hepalink Pharmaceutical Group Co.Ltd(002399) listed as early as May 6, 2010 as an example. At that time, the company landed on the A-share gem at an ultra-high issue price of 148 yuan. On the day of its listing, the share price of Kweichow Moutai Co.Ltd(600519) was only 127.35 yuan. After nearly 20 years of development, the share price has reached {2079} and the share price has reached {2079} for nearly 20 years. The reason why Shenzhen Hepalink Pharmaceutical Group Co.Ltd(002399) was issued at an ultra high price at that time was closely related to the “excellent growth” before and at the initial stage of Shenzhen Hepalink Pharmaceutical Group Co.Ltd(002399) listing. From 2008 to 2010, the operating revenue of Shenzhen Hepalink Pharmaceutical Group Co.Ltd(002399) was 435 million yuan, 2224 million yuan and 3853 million yuan respectively; In the same period, the net profit was 161 million yuan, 809 million yuan and 1.21 billion yuan respectively. In just three years, the operating revenue of the company increased by 7.86 times and the net profit increased by 6.52 times. However, in fact, this beautiful data in the prospectus does not exclude the deliberate beautification of sponsors before listing, because its performance “changed” in 2011. The annual operating revenue and net profit were 2.496 billion yuan and 622 million yuan respectively, down 35.26% and 48.57% compared with the same period in 2010. Interestingly, as early as the beginning of Shenzhen Hepalink Pharmaceutical Group Co.Ltd(002399) listing, negative news such as FDA “certification door” of heparin sodium and inflated profits had been spread in the market. However, at that time, research institutions still unanimously “coincidentally” reported Shenzhen Hepalink Pharmaceutical Group Co.Ltd(002399) with the view of “high growth”, and wantonly packaged and publicized it as the leader of heparin sodium raw material in the research report.
With regard to the problems existing in the process of IPO, Wang Jiyue told the reporter of red weekly that the current IPO environment is fundamentally different from that in 2010. The most important thing is that the number of institutions participating in inquiry has been qualitatively different, “In 2010, it was OK to find 20 institutions to quote, but now more than 400 institutions generally participate. 20 institutions can say hello and find relationships, while 400 institutions are difficult to manipulate.”
Similarly, Chen Shaoxia is relatively cautious about the problems existing in the process of issuing new shares. He believes that the possibility that there is still a gray interest chain in the process of IPO cannot be ruled out. “As an interested party, the recommendation and underwriting fee of investment banks is linked to the fund-raising amount of listed companies. With the increase of over raised IPOs, the income of investment banks is also rising.”
In fact, Chen Shaoxia’s statement can also be confirmed from the cost of issuing new shares. According to the data, among the more than 500 companies that completed IPO in 2021, 97 companies had an issuance fee of more than RMB billion, and 54 companies had an underwriting and recommendation fee of more than RMB billion.
Dong Dengxin, director of the Institute of Finance and securities of Wuhan University of science and technology, said that inquiry institutions dare to quote high prices and issuers dare to issue at high prices. The most important thing is that retail investors based on the secondary market are too enthusiastic about new shares, “IPO new market value placement has caused the consequences of hungry marketing. Most investors believe that playing new can make a steady profit without losing. Few people are willing to give up any new opportunities, which leads to investors’ blind playing new without risk awareness.”
Dong Dengxin believes that under the background of the registration system, the market value placement does not meet the basic demands of market-oriented reform. Only by abolishing the market value placement and increasing the participation cost of innovation can we urge investors to stop blindly innovation. Only when investors themselves raise their vigilance, carefully analyze the risks and values after listing before participating in the innovation, and no longer pay without brains, can the inquiry institutions dare not quote high prices, and the issuers dare not issue at high prices.
In addition, Shi XingKong, a senior financial official, also told the reporter of red weekly that the characteristic of the registration system is wide in and wide out. It is difficult to completely cut off the interest chain in the short term, “The capital market must do a good job in environmental construction, strengthen the review of intermediary institutions, strictly supervise violations, and strengthen the prohibition management of illegal institutions and individuals. At the same time, small and medium-sized investors should also learn to vote by themselves, polish their eyes and eliminate problematic listed companies. The ‘break-up’ of new shares will lead to a decline in the rate of return on new shares, which will force investors to take the initiative Research on the fundamentals of new share issuance. ”
the over raised funds can be used to repurchase or place public offline strategic funds
It is worth mentioning that the issuing price of 557.80 yuan / share of the “most expensive” new shares in history recently created the highest price of A-share issuance. After over raising 4.848 billion yuan, the company decided to manage its huge amount of over raised funds. Such fund-raising arrangement obviously caused hot discussion in the market, and the topic of ineffective use of over raised funds and waste of resources was pushed to the forefront again.
Looking at the announcements of relevant listed companies, it can be found that the IPO over raised funds are usually used to permanently supplement working capital, cash management and invest in new projects. For example, Nanjing Vazyme Biotech Co.Ltd(688105) , Novoray Corporation(688300) , Guizhou Zhenhua E-Chem Inc(688707) , Hunan Sokan New Materials Co.Ltd(688157) , S.P.I Landscape Design Co.Ltd(300844) and other companies have issued announcements to permanently supplement working capital with some over raised funds; Companies such as Wuhan Zhongyuan Huadian Science And Technology Co.Ltd(300018) , Jiangsu Skyray Instrument Co.Ltd(300165) , Runa Smart Equipment Co.Ltd(301129) , Netac Technology Co.Ltd(300042) have successively announced the use of some over raised funds for cash management and the purchase of low-risk and stable investment products. Of course, some IPO companies announced that they would use part of the over raised funds for investment and construction of new projects, or for the acquisition of equity of the company.
For example, gem company Hangzhou Chinastars Reflective Material Co.Ltd(301077) announced on December 30 that it plans to invest in the production project of functional fabrics with an annual output of 150 million square meters; Adhesive project with an annual output of 50000 tons; Functional materials and fabrics production R & D center project. The total investment of the investment and construction project is expected to be 854 million yuan, of which the total amount of over raised funds to be used is 400 million yuan. Among them, the total investment of the functional fabric production project with an annual output of 150 million square meters is expected to be 330 million yuan, and part of the over raised funds to be used is planned to be 150 million yuan; The estimated total investment of the adhesive project with an annual output of 50000 tons is 220 million yuan, and part of the over raised funds to be used is 100 million yuan; It is estimated that the total investment of the R & D Center for the production of functional materials and fabrics will be 303 million yuan, and some of the over raised funds to be used will be 150 million yuan.
Kechuang board company Shareate Tools Ltd(688257) also announced on December 16 that it plans to use the over raised funds of 70.8 million yuan to acquire 60% equity of Zhuzhou Weikai cutting tools Co., Ltd. from Zhuzhou Jinwei cemented carbide Co., Ltd. and plans to use the over raised funds to jointly increase the capital of Zhuzhou Weikai with Liu Changbin, the shareholder of Zhuzhou Weikai. Shareate Tools Ltd(688257) was listed on the science and Innovation Board on October 27, 2021. The company is expected to raise 746 million yuan in the initial public offering, but the actual raised capital is 1.445 billion yuan, with an over raised amount of 700 million yuan.
There are a lot of idle funds in over raised new stock companies. Although buying financial management and eating interest is a solution, in fact, it is also a waste of market resources. In this regard, Wang Jiyue put forward two suggestions, “First, the company is allowed to repurchase shares with over raised funds. During IPO, it is required to issue no less than 25% of new shares, but after listing, it is only required to issue no less than 25% of social public shares, and social public shares include some shares held by non actual controllers or directors, supervisors and senior managers who are still in the lock-in period. Therefore, most companies will have room for repurchase; in addition, they can expand their shares to more than 400 million shares with capital reserve, so that social public shares can be purchased The proportion of can be reduced from 25% to more than 10%, which will have enough repurchase space. Second, the company is allowed to use the over raised funds to subscribe for the offline strategic placement fund of public funds for IPO subscription of other companies. The risk of offline strategic placement fund is relatively small, and listed companies can obtain higher returns under the condition of low risk. In this way, idle funds can return to the market again to support the IPO issuance of other companies, which can also be regarded as funds to support the development of the real economy. ”
Similarly, for the use of over raised funds, Dong Dengxin believes that how to use the over raised funds should be determined by the enterprise’s internal supervision mechanism. Since investors are given the right to “vote with their feet” and “vote with their hands”, they should be respected. Rational use of over raised funds may create excess returns for listed companies; However, if the investment is too radical, it may also bring certain operating risks to listed companies. The most common operation is to buy financial products. Although there is some controversy, the safety margin is indeed relatively high.
(stock market red weekly)
