China to scrutinize funds for excessive investment in Foshan Haitian IPO

SHANGHAI- The Shanghai Stock Exchange will investigate investment funds that purchased excessive amounts of shares in the recent initial public offering (IPO) of Foshan Haitian Flavouring and Food Co, the official Shanghai Securities Journal reported on Tuesday.

The report comes as regulators try to dampen excessive speculation and curb volatility in the country's IPO market, which reopened in January after being frozen since late 2012.

Foshan Haitian, which raised 1.9 billion yuan (S$ 392 million) via the IPO, began trading on the Shanghai exchange on Feb. 11 and spiked on debut, opening at 61.5 yuan per share and then shooting up as high as 73.8 yuan at one point.

The bourse was investigating funds that bought large amounts of shares on the first day of trade in line with regulations, the newspaper said.

An official at the Shanghai exchange's public relations department confirmed the newspaper report.

According to the regulation, issued by the exchange in December, any investment account or group of accounts controlled by a single investor purchasing 1 per cent or more of new shares listed on the first day of trading will be subject to scrutiny by the exchange.

The restart of IPOs in China has already proven rocky, with multiple companies suspending listing plans after being accused of overpricing their shares to provide generous cashouts for insiders.

Securities regulators are also worried that new IPOs will cannibalise investment funds from other stocks as investors scramble to climb on board new listings to benefit from sharp valuation "pops" on the first day of trade, only to dump the shares a few days later.