First China firm to list since 2012 soars in debut on pent-up demand
SHANGHAI (Reuters) - The first firm to list in mainland China after a 14-month freeze on IPOs jumped 43.5 percent in its debut, just shy of its daily limit, underscoring pent-up demand that bodes well for a raft of new issues to come.
But any hopes of lofty fund-raising targets have been dashed for now after China's stock market watchdog said this week it will police IPO pricing behavior, concerned about a return to overpricing.
With the heightened supervision, at least eight companies have postponed their IPOs and many have sold shares at valuations much lower than their peers.
Neway Valve (Suzhou) Co Ltd (603699.SS), the major valve maker which made its debut on Friday, benefited from being the first to market after the moratorium - which was put in place as authorities carried out reforms aimed at weeding out speculation and restoring investor confidence in the stock market.
"Because this is the first one and people have been waiting for so long, definitely it will attract a lot of the interest from investors," said Edmond Chan, capital market services group partner at PwC in Hong Kong.
Its shares closed at 25.34 yuan, up from their IPO price of 17.66 yuan and drawing demand away from large cap stocks that helped pushed the CSI300 index of top companies down 1.5 percent to a 5-1/2 month low. Shares are permitted to rise or fall up to 44 percent on their first day of trade.
Neway Valve priced its $240 million IPO before news of the closer grip on valuations. Its IPO price to earnings ratio was equivalent to 46.47 times its 2012 profit, more than double the average p/e ratio of 21.25 for manufacturers listed on the Shanghai exchange.
Some 50 companies have received approval to list on the Shanghai and Shenzhen stock exchanges and more than 700 are looking to make their market debut, according to the regulator, the China Securities Regulatory Commission (CSRC).
PwC in early January estimated that Chinese companies could raise 250 billion yuan ($41 billion) from listings in Shenzhen and Shanghai this year.
A Nanjing-based analyst at local brokerage said that while Neway's strong debut was a good sign for other firms in the pipeline, they would not necessarily all see such huge first-day "pops".
"I don't think this means that other companies listing in the future will necessarily see the same investor appetite. Firstly, the regulator has changed its attitude towards high pricing, secondly, the whole market is currently very weak," he said.
While many industry participants see this early phase after the lifting of the IPO moratorium as one of inevitable teething problems, the CSRC has also drawn criticism that it is moving away from pledges to make the IPO market more market-driven.
The commission sought to rebut that criticism on Friday.
Referring to an IPO postponement by Jiangsu Aosaikang Pharmaceutical Co Ltd last week, a spokesman for the regulator told a weekly news conference that the plan for pre-IPO shareholders to massively reduce their holdings was likely not in investors' best interests.
"I will stress we will adamantly pursue the market-oriented IPO reforms and this direction will not be changed," he said.
As part of the increased oversight, authorities have said they have begun inspections of pricing behavior, targeting 13 underwriters and 44 institutional investors.
The inspections by the CSRC involve looking through underwriters' telecommunication records over the past six months and conducting hearings on their family background, work experience among other subjects, the official Shanghai Securities News reported, citing unidentified bankers.
"The scope of the investigation is comparable to that of a crime case," the report said.
It added that its inspections into institutional investors would look for any signs of collusion with underwriters, such as receiving non-public information.
On Thursday, Shaanxi Coal Industry Co Ltd cut its IPO target by more than half to $660 million, the biggest offering that appears to have been affected by the increased oversight, although even in its reduced form, it remains the largest mainland IPO for 2014 so far.
Other firms that have priced their shares at a discount to industry rivals include Beijing Utour International Travel Service Co Ltd, Yangzhou Yangjie Electronic Technology Co Ltd and Hebei Huijin Electromechanical Co Ltd.
China Securities was the lead underwriter of Neway Valve deal. ($1 = 6.0557 Chinese yuan)
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