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Chinese IPOs: Exchanges reopen for business

Hot on the heels of its highly successful $11 billion IPO in Hong Kong, mainland Chinese state-owned Bank of China is listing in Shanghai, raising an additional $2.5 billion.

The speed with which the domestic IPO was launched, just a month after the Hong Kong listing, caught many in the market unaware.

“We were very surprised to see they did the IPO so fast,” says a senior banker. “It’s an aggressive move.”

The aggression can be attributed to the government, which is increasing the pace of its domestic market reforms. As such, the Bank of China deal is a watershed for the domestic markets. Barely a year ago, officials attempted a simultaneous offering in Hong Kong and Shanghai of another mainland lender, Bank of Communications. The Shanghai listing was shelved after it became apparent that the market could not bear the additional capital.

Yet the Bank of China IPO has passed off with barely a ripple of dissent and mainland investors have queued up to buy the shares. The IPO was heavily oversubscribed. The key to this remarkable turnaround has been the success of the government’s share reform proposals over the past year or so. This has involved companies overhauling their capital structures to remove vast overhangs of government-controlled shares.

Now that the government has lifted its moratorium on new listings, companies are free to seek listings in Shanghai or Shenzhen, although sources close to the China Securities Regulatory Commission, the market regulator, suggest that priority for listing permission will remain very much with state-owned enterprises at the expense of the private sector.

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