UPDATE 2-Zhengzhou Coal tumbles in HK debut, bad sign for PICC

Wed Dec 5, 2012 2:03am EST

* Slump could pressure PICC Group debut on Friday

* Shares tumble nearly 9 pct in HK debut

* Outlook for coal-related companies not so rosy

* Citic Sec, Deutsche, UBS bought $37 mln of unsold stock (Adds outlook for company, details)

By Elzio Barreto

HONG KONG, Dec 5 (Reuters) - Shares in Zhengzhou Coal Mining Machinery slid in their first day of Hong Kong trade after underwriters of the $300 million offering were stuck in the rare position of holding unsold stock, underscoring poor demand that bodes ill for Chinese insurer PICC's bigger debut on Friday.

Tumbling coal prices have made it a particularly inauspicious time for coal-related firms to come to market, but it has also been a bad season for many listings in the region, with investors spooked by China's economic slowdown, Europe's debt crisis and the underperformance of several IPOs last year.

New stock offerings in Hong Kong have dwindled and volumes are down by about 63 percent so far this year, according to Thomson Reuters data, a shocking reversal for the city which had been world's top IPO destination in 2009 and 2010.

Shares in Zhengzhou Coal Mining Machinery Group Co Ltd, which is also listed in Shanghai, dropped to HK$9.47, down almost 9 percent from their listing price of HK$10.38.

That in turn had been the bottom of its indicative range of HK$10.38 to HK$12.28.

The benchmark Hang Seng index climbed 1.5 percent.

The $37.2 million in unsold stock is not subject to any lock-up conditions and could hang over the company's Hong Kong share price for some time.

In Shanghai, the company's stock gained 5.4 percent but is still down about 28 percent for the year to date, underperforming a 10 percent decline in the Shanghai Composite Index.

SLIM PICC-INGS

Like Zhengzhou Coal, state-owned PICC Group priced its offering near the bottom of the indicative range. PICC's underwriters also ended up revising down the company's valuation and IPO size, raising a less-than-hoped-for $3.1 billion.

Companies including Zhengzhou Coal and PICC Group have increasingly relied on funds from so-called cornerstone investors to get their deals done. Cornerstones back many Asian listings, committing to buy large, guaranteed stakes and agreeing to a lock-up period during which they will not sell their shares.

PICC Group had more than half of its IPO covered by cornerstone orders, including a $500 million investment from U.S. insurer American International Group (AIG). Zhengzhou Coal secured $120 million in pledges from investors including asset manager Shikumen Capital and coal producer Inner Mongolia Yitai Group Co Ltd < 900948.SS>.

COAL PRICE PAIN

Coal prices have declined by a fifth so far this year, likely prompting miners to slow or delay expansion plans, reducing demand for new machinery produced by Zhengzhou Coal and other companies.

"If the market is so bad, why would (coal companies) spend money on capex? They can just delay those investments," said Shirley Zhao, a coal industry analyst at Mirae Asset Securities in Hong Kong.

She said that Mirae now only expects 6 percent growth in China coal consumption and production? after five years of double digit growth.

Zhengzhou Coal, which counts China Shenhua Energy Co Ltd , the country's largest coal producer, as a key client, gets nearly 69 percent of its sales from hydraulic roof supports used to prevent rocks from falling into a coal mine's working area. Some 23 percent of revenue comes from its steel and raw materials trading business.

Profits in the six months ended June totalled 832.3 million yuan on sales of 4.72 billion yuan.

Demand from institutional and retail investors fell short of the number of shares offered, prompting three of Zhengzhou Coal's four underwriters to buy the unsold shares.

Citic Securities Corporate Finance bought 22.4 million shares, while Deutsche Bank took up 710,000 shares and UBS AG another 4.65 million shares.

JPMorgan was also an underwriter for the offering.

($1 = 7.7500 Hong Kong dollars) ($1 = 6.2256 Chinese yuan) (Reporting by Elzio Barreto; Editing by Edwina Gibbs)