UPDATE 1-China approves first major IPO in 10 months

Wed Jul 1, 2009 2:57am EDT

Related Topics

* Sichuan Expressway to float 500 mln shares in Shanghai

* Shanghai IPO to raise at least 1.4 bln yuan to buy assets

* Shanghai shares will likely have huge premium over HK

By Shen Yan and Simon Rabinovitch

BEIJING, July 1 (Reuters) - Chinese regulators have given Sichuan Expressway Co (0107.HK) final approval to float shares in Shanghai in the mainland's first major IPO since last September, which will raise at least 1.4 billion yuan ($205 million).

"The China Securities Regulatory Commission chairman has signed the final approval notice for the firm to issue shares," a source familiar with the deal said on Wednesday. He could not be quoted by name as he was not authorised to talk to the media.

The Hong Kong-listed toll road operator will issue up to 500 million yuan-denominated A shares on the Shanghai Stock Exchange, or 16.35 percent of its expanded share capital after the IPO, according to the source and the firm's draft prospectus issued in June 2008 when it won initial regulatory approval.

China has given approval to three smaller companies, including traditional Chinese medicine maker Guilin Sanjin Pharmaceutical Co, to launch offerings on the Shenzhen Stock Exchange since last month's lifting of a quiet ban on IPOs.

That ban was imposed last year during a market slump but China's stock market has since rebounded, with the benchmark index .SSEC surging more than 60 percent so far this year on ample liquidity in the financial system and signs that the economy is recovering from the global financial crisis.

In its draft prospectus, Sichuan Expressway said it would spend 1.1 billion yuan to buy expressway assets from its controlling shareholder.

MAINLAND PREMIUM

Based on the HK$3.17 value of Sichuan Expressway's Hong Kong-listed shares, the company would be able raise 14 billion yuan, but the mainland-listed A shares of dual-listed Chinese firms often enjoy huge premiums over their Hong Kong-listed counterparts.

The average premium of domestically listed Chinese shares over Hong Kong-listed shares in the same firms .HSCAHPI was at 38 percent at the close on Tuesday, while the premium of a comparable company, Shenzhen Expressway (600548.SS)(0548.HK), stood at 81 percent. Hong Kong's financial markets were closed on Wednesday for a holiday.

Chinese investors also typically favour IPO shares, which will likely give Sichuan Expressway's valuation a substantial boost in the Shanghai offer.

Guilin Sanjin, the first offer in Shenzhen in this year's IPO resumption, was 584 times subscribed for the key retail portion of its issue on Monday. It attracted a huge 455 billion yuan in investor subscription funds, including the smaller institutional portion.

The drugmaker raised 44 percent more in proceeds than it had expected for its IPO after pricing the shares at a hefty valuation of 33 times against historical earnings.

The second IPO, Zhejiang Wanma Cable Co, to be subscribed on Thursday, has been priced at 31 times earnings, compared with an average 25 times historical earnings for Chinese A shares.

Around 30 other companies, including Everbright Securities, a top-10 brokerage, and China State Construction Engineering Corp, the country's biggest home builder, have also won initial approval to go public and are on a waiting list for the final go-ahead.

The resumption of IPOs is expected to push at least 100 billion yuan in new shares onto the mainland markets this year, according to Reuters calculations. ($1=6.832 Yuan) (Writing by Lu Jianxin; Editing by Edmund Klamann)

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