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Friday 8 January 2010
China train maker sputters on debut; warning for IPOs
CNR Corp, one of China’s top two train makers, limped in with a lukewarm market debut after its US$2 billion IPO here, signalling investors’ intolerance for high valuations as a flood of new equity awaits next year.
China train maker sputters on debut; warning for IPOs
China has stepped up pace of IPO approvals recently
Reuters 30 December 2009
(SHANGHAI) CNR Corp, one of China’s top two train makers, limped in with a lukewarm market debut after its US$2 billion IPO here, signalling investors’ intolerance for high valuations as a flood of new equity awaits next year.
CNR’s 4.3 per cent gain over its IPO price was the worst performance for a Shanghai debut this year, after the mainland’s fourth- largest IPO of the year valued the company at 49 times its 2008 earnings, double the market average.
‘The weak debut is actually good for the market as it sends a warning for future IPOs, forcing companies to think twice before they set sky-high IPO prices,’ said Chen Huiqin, senior stock analyst at Huatai Securities in Nanjing.
China has stepped up the pace of IPO approvals in recent weeks, as Chinese firms rush to tap buoyant stock markets to raise funds while regulators see boosting equity supply as a means of curbing potential asset price bubbles.
Yesterday, building firm China National Chemical Engineering Co priced its Shanghai A-share IPO at 5.43 yuan a share, at the top of an indicated range, raising 6.7 billion yuan (S$1.35 billion).
That valued the company at 45 times its 2008 earnings, well above rivals China State Construction Engineering Corp at 22 times and Metallurgical Corp of China at 16 times.
While stockmarket debuts have traditionally attracted feverish speculative buying by mainland investors, first-day gains by new listings have dampened in recent months as the IPO pipeline filled up.
Metallurgical Corp of China, the firm that helped build Beijing’s ‘Bird’s Nest’ Olympic stadium, and China Merchants Securities both staged a weak debut this year.
CNR’s IPO valuation matched the historical price earnings (PE) ratio of its rival China South Locomotive & Rolling Stock Corp but far exceeded the overall Shanghai market’s price-earnings multiple of 28.
‘The high IPO price leaves no margin for profit for secondary market investors. The problem will be solved through lower IPO pricing,’ said Ren Chengde, a senior analyst at Galaxy Securities.
Domestic media reported last week that the month of December alone is expected to see a total of 35 IPOs, the biggest monthly number in 12 years, raising a combined 44.6 billion yuan.
Local-currency A shares in CNR, one of China’s two big train makers, began trading on the Shanghai Stock Exchange at 5.80 yuan, up from their initial public offer price of 5.56 yuan.
The shares ended morning trade at 5.73 yuan, up only 3.06 per cent.
The opening price was much weaker than the average market forecast for a debut day price of 6.7 yuan, or a gain of 21 per cent from the IPO price, cited by local media.
CNR said it will use the IPO proceeds to upgrade its technology. - Reuters
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China train maker sputters on debut; warning for IPOs
China has stepped up pace of IPO approvals recently
Reuters
30 December 2009
(SHANGHAI) CNR Corp, one of China’s top two train makers, limped in with a lukewarm market debut after its US$2 billion IPO here, signalling investors’ intolerance for high valuations as a flood of new equity awaits next year.
CNR’s 4.3 per cent gain over its IPO price was the worst performance for a Shanghai debut this year, after the mainland’s fourth- largest IPO of the year valued the company at 49 times its 2008 earnings, double the market average.
‘The weak debut is actually good for the market as it sends a warning for future IPOs, forcing companies to think twice before they set sky-high IPO prices,’ said Chen Huiqin, senior stock analyst at Huatai Securities in Nanjing.
China has stepped up the pace of IPO approvals in recent weeks, as Chinese firms rush to tap buoyant stock markets to raise funds while regulators see boosting equity supply as a means of curbing potential asset price bubbles.
Yesterday, building firm China National Chemical Engineering Co priced its Shanghai A-share IPO at 5.43 yuan a share, at the top of an indicated range, raising 6.7 billion yuan (S$1.35 billion).
That valued the company at 45 times its 2008 earnings, well above rivals China State Construction Engineering Corp at 22 times and Metallurgical Corp of China at 16 times.
While stockmarket debuts have traditionally attracted feverish speculative buying by mainland investors, first-day gains by new listings have dampened in recent months as the IPO pipeline filled up.
Metallurgical Corp of China, the firm that helped build Beijing’s ‘Bird’s Nest’ Olympic stadium, and China Merchants Securities both staged a weak debut this year.
CNR’s IPO valuation matched the historical price earnings (PE) ratio of its rival China South Locomotive & Rolling Stock Corp but far exceeded the overall Shanghai market’s price-earnings multiple of 28.
‘The high IPO price leaves no margin for profit for secondary market investors. The problem will be solved through lower IPO pricing,’ said Ren Chengde, a senior analyst at Galaxy Securities.
Domestic media reported last week that the month of December alone is expected to see a total of 35 IPOs, the biggest monthly number in 12 years, raising a combined 44.6 billion yuan.
Local-currency A shares in CNR, one of China’s two big train makers, began trading on the Shanghai Stock Exchange at 5.80 yuan, up from their initial public offer price of 5.56 yuan.
The shares ended morning trade at 5.73 yuan, up only 3.06 per cent.
The opening price was much weaker than the average market forecast for a debut day price of 6.7 yuan, or a gain of 21 per cent from the IPO price, cited by local media.
CNR said it will use the IPO proceeds to upgrade its technology. - Reuters
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