CHINA will lift a four-month freeze on initial public offerings (IPOs) by the end of the year, the securities regulator said Friday, removing a suspension put into effect in July as regulators desperately tried to slow a devastating stock market crash.

    The announcement comes amid signs of a notable recovery in investor confidence and after the Shanghai stock market rallied more than 8 percent in the past three days last week. China’s stock indices are up by more than 20 percent from the bottom of a crash struck in August, technically marking a return to a bull market.

    The resumption will help Chinese companies tap into an important source of financing as they seek to cut debt levels from near record highs.

    Deng Ge, spokesman for the China Securities Regulatory Commission (CSRC), said that 28 firms that had seen their already-approved listings halted by the freeze would be the first out of the gate, adding they have two weeks to prepare for the resumption, with the first batch of 10 firms launching after Nov. 20.

    “This is a good news for the stock market in the mid-to-long term as it will introduce fresh cash, though it will also bring some psychological pressure to investors as they are afraid of diversion of the cash in the short term,” said Xiao Shijun, analyst at Guodu Securities in Beijing.

    The stock market crash over the summer was partly blamed on a spate of IPOs hitting an already frothy and heavily leveraged market.

    Companies in China raised US$23.4 billion in IPOs in 2015 through mid-June before regulators suspended deals, far surpassing the US$13.2 billion in all of 2014.

    At one point, the CSRC was letting 40 companies list every week and there were even more secondary issuances.

    “I don’t think the resumption will cause a market stampede again,” said Xiao. “In June, the fundamentals were distorted by high leverage, which does not quite exist in the current market after regulator’s aggressive moves.”

    The CSRC has said it would migrate away from its current approval system for IPOs to a system, in which companies merely register to list without requiring regulatory clearance.

    However, rules aimed at preventing insiders from fleecing investors suppressed IPO pricing, unintentionally creating an easy profit for those investors able to subscribe.

    Nearly every listing in China rose by the maximum allowable 44 percent on the first day, and most went on to rise into triple digits in the following weeks.

    As a result, IPOs went oversusbcribed by an average of 130 times and the escrowing of cash by aspiring subscribers temporarily sucked trillions out of the money markets and distorted interest rates.

    The regulator said in a document posted on its website that it was eliminating the escrow requirement and also eliminating the bookbuilding period for IPOs with fewer than two million shares, to reduce costs for smaller listing companies.

    Before the stock market started tumbling in June, Chinese authorities had endorsed the use of equity financing as an alternative to debt, which becomes more difficult for many companies to repay as economic growth slows.

    The aggregate debt-to-equity ratio for companies in the Shanghai Composite Index rose to the highest level since 2005 in January, while the McKinsey Global Institute estimates corporate liabilities reached 125 percent of gross domestic product in 2014.

    “IPOs have to be resumed given that the stock market should be functioning for companies to raise capital and that should help the economy,” said Lu Wenjie, a Shanghai-based strategist at UBS Group. (SD-Agencies)