China plans tighter rules on IPO sponsors: sources

SHANGHAI (BestGrowthStock) – China plans to tighten up rules governing sponsors of initial public offerings after a surge of new issues this year sparked concerns about the quality of disclosure in IPO prospectuses, sources told Reuters on Thursday.

Under the new rules, IPO sponsors will be interviewed by the securities regulator regarding the due diligence process of a new issue, said the sources who had direct knowledge of the rules but spoke on condition of anonymity because the details have not been publicly released.

IPO sponsors will also be required to complete a due diligence check-list and sign off a declaration that they are aware of the legal consequences of negligent acts, they said.

Investment banks have received draft rules issued by the China Securities Regulatory Commission (CSRC) seeking feedback from the industry, they added.

A spokesman for the CSRC was not immediately available for comment.

Since 2004, Chinese companies seeking an IPO on the stock exchanges in Shanghai and Shenzhen have been required to obtain the endorsement of a qualified sponsor, whose duty is to make sure financial data and other information provided in IPO prospectuses are truthful.

It is a common practice in China for an underwriter to also act as the sponsor of an IPO.

But the six-year old system has come under growing strain in recent years as the number of qualified sponsors can not keep up with the pace of new issues, and sometimes sponsors have not conducted onsite due diligence before signing off on the endorsement of a new issue.

(Reporting by Soo Ai Peng and Samuel Shen; Editing by Lincoln Feast)

China plans tighter rules on IPO sponsors: sources