IPOs can't happen too soon

Stocks | Mike Bastin

As we approach the turn of the year and prepare to enter 2014, it is worth remembering that it was way back in October 2012 that the last initial public offering took place in China.

Fraud and misconduct by financial advisers and companies applying for IPOs led to a decision by the central government to suspend initial offerings indefinitely.

The very recent news, therefore, of reform to the IPO process at stock exchanges in China is extremely welcome and timely.

Essentially, the reform package should lead to a far more transparent process, with information disclosure and transparency at its heart. IPO applicants will be forced to make more information public and potential investors will be able to make better-informed investment decisions.

The reform package also pledges stricter enforcement of laws and regulations post-flotation, which should also boost investor confidence.

But with more than 700 companies in the IPO pipeline, will these measures not lead to a dangerous surge in IPO activity? This is highly unlikely. Approximately 50 of those in the pipeline should be ready for flotation by the end of January 2014, a very manageable number.

The reform package and other recent announcements in the same vein should lead to successful IPOs early next year, but this will not lead to an overly large number of follow-up IPO applications, and it certainly will not lead to any fast-tracking of IPO applications from now on.

Instead, the new system will create a climate of confidence among the investment community, especially those all-important smaller investors. For this confidence to persist, and a long-term resurrection in China's IPO market to take place, the authorities will surely manage this more transparent and public IPO pipeline.

As China's financial services sector, and not just its IPO approval process, moves toward a culture of openness and market orientation, we can be sure that only gradual movement will lead to any smooth, sustainable transition.

It behooves the authorities, therefore, to restart China's IPO market carefully, cautiously and avoid at all costs any contagious outbreak of investor and IPO applications frenzy.

Careful selection of the first IPO candidate to hit the market since October 2012 is key to rebuilding market confidence.

What better than an extremely well-known and financially successful Chinese company, and one that plans to float outside the Chinese mainland, possibly in the United States?

There can be no better advertisement of any new, transparent, secure IPO process in China than the snatching of just such a company from the jaws of New York or London.

And of course Alibaba Group Holding Ltd fits the bill perfectly. The time is certainly right for this e-commerce giant to be listed and the Chinese public, who have put Alibaba on the global map, wouldn't hesitate to invest in this symbol of China's modernization.

Far from the IPO floodgates opening up, we will witness the Chinese authorities cherry-picking the ripest and readiest Chinese companies for IPOs in 2014. Quality and not quantity will characterize China's IPO market from now on.

Alibaba's IPO in Shanghai rather than New York will signal real progress in the maturity of China's financial sector. Let's hope it happens and soon.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer on marketing at Southampton Solent University's School of Business.