RPT-UPDATE 2-Shaanxi Coal debut hit by volatility in China's reopened IPO market

Tue Jan 28, 2014 5:01am EST

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SHANGHAI Jan 28 (Reuters) - Shares of Shaanxi Coal Industry Co Ltd jumped in their Shanghai debut but came off earlier stratospheric highs in a roller coaster day as China's newly reopened initial public offering market drew out aggressive punters.

Shaanxi Coal, which raised $660 million in the biggest mainland China listing since 2012, had soared by its daily limit of 44 percent in early trade. That triggered a suspension until five minutes before the market's close and prompted an announcement from the exchange that it had taken measures against two retail investors who had driven the price up aggressively.

When trade restarted, it plunged to end a comparatively mild 13.8 percent higher at 4.55 yuan. Most of the shares changed at an average price of 4.69 yuan, data showed, underscoring the unusual nature of the high of 5.76 yuan earlier in the session.

China's re-opening of its IPO market after a 14 month freeze has been marked by huge first day "pops" for new issues due to pent-up demand as well as relatively cheap valuations after companies, including Shaanxi Coal, priced IPOs low amid heightened regulatory supervision.

The moratorium had been put in place to carry out reforms aimed at weeding out speculation and restoring investor confidence in the stock market.

Helen Lau, a senior analyst at UOB Kay Hian Ltd in Hong Kong, said that while Shaanxi Coal, China's third-largest listed coal miner, had better earnings potential than rivals due to better coal quality and higher production rates, the early 44 percent jump did not reflect fundamentals.

"This hype is overdone, it is too strong," she said.

DEPRESSED COAL MARKET

Shaanxi Coal, a state-owned giant based in China's coal-rich northern province of the same name, competes with China Shenhua Energy Co Ltd and China Coal Energy Co Ltd in a highly fragmented market. Shenhua is the biggest listed miner but only produced about 10 percent of mainland coal volumes in 2013.

Shaanxi Coal had cut its IPO target by 60 percent from an estimate made earlier this year - one of the companies that appeared to have been affected by the increased oversight.

The China Securities Regulatory Commission said this month it would increase supervision of IPOs and has begun inspections of IPO pricing behaviour.

Its IPO was valued at a price to earnings ratio of 6.23 times its 2012 profit on a diluted basis. That compared with an average of 10.31 times for mining firms listed on the Shanghai stock exchange.

Shaanxi Coal's debut comes as the outlook for China's coal market remains weak, with the China Coal Association forecasting growth in supply to outpace demand.

Coal demand has also been hit by slower economic growth and by Beijing's push to tackle air pollution, which has seen a slew of major cities introduce plans to curb coal consumption and substitute that with cleaner fuels, like natural gas.

"In the future, I don't think (Shaanxi Coal's) share price will fall below the IPO price, but in the long-term, I don't see any impetus for it to increase as the whole market is pretty depressed," said a Shanghai-based analyst who declined to be identified because he is not authorised to speak to the media.

Since the resumption of China IPOs, 36 firms, including Shaanxi Coal, have listed, with many leaping by the 44 percent limit on their first day of trade before giving up some of those gains.

Neway Valve Suzhou Co Ltd, the first company to list since the re-opening, is trading at roughly 21 percent above its IPO price since listing just under two weeks ago.

BOC International, China Securities, and CICC were the underwriters for the Shaanxi Coal deal. ($1 = 6.0480 Chinese yuan) (Reporting by Shanghai Newsroom and Elzio Barreto in Hong Kong; Editing by Kazunori Takada and Edwina Gibbs)

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