(Adds analyst comment, background)
* Shares up 3 pct in mid-morning trade
* First major offering after introduction of new IPO rules
* Optimism over government policy supports shares
By Melanie Lee
SHANGHAI, July 6 Shares of CITIC Heavy
Industries Co firmed on its Shanghai debut on
Friday, after the heavy machinery maker raised $500 million in
China's biggest IPO so far this year, boosted by expectations of
pro-growth policies to support the economy.
CITIC Heavy shares opened at 4.69 yuan, compared with its
IPO price of 4.67 yuan, but pushed higher to be up 3 percent at
at 4.81 yuan by 0155 GMT.
"The sector is bottoming out in the second quarter and
fundamentals are improving, with the government looking at more
infrastructure and residential construction to support growth,"
said Alexious Lee, a Hong Kong-based analyst with CLSA.
The 3.2 billion yuan ($503 million) IPO is the first major
offering by a Chinese company since regulators unveiled a series
of rules aimed at pushing down IPO prices and curb speculative
trading in newly-listed stocks.
CITIC Heavy had planned to raise 6 billion yuan, but slashed
its fundraising target due to market sluggishness. China's main
stock index has been flat this year after falling for
two straight years.
The IPO is still China's biggest this year, although China
Communications Construction , which was
already listed in Hong Kong, raised 5 billion yuan when it
listed in Shanghai in March.
Chinese investors have become wary after IPOs have typically
been sold expensively, with newly listed shares pushed to lofty
valuations before tumbling, burning many of the country's 72
million retail investors.
Of nearly 600 stocks that debuted over the past two years or
so on the smaller Shenzhen stock exchange, more than 85 percent
now trade below their debut prices.
To boost investor confidence in the stock market, regulators
have unveiled punitive measures against irresponsible IPO
pricing and scrapped lock-up periods for institutional investors
in IPOs to boost liquidity and curb speculation.
Among the new rules introduced in May, a company must
publish a statement disclosing potential risks if its IPO is
priced more than 25 percent higher than the average
price/earnings ratio of its industry peers.
The stock regulator will also seek an explanation from
senior management and can punish companies that fail to meet
CITIC Heavy, controlled by state conglomerate CITIC Ltd,
priced its offering at 16.2 times historical earnings, lower
than an average price/earnings ratio of 20 times for its listed
The IPO comes at a time when Chinese heavy machinery makers
such as China First Heavy Industries and Taiyuan
Heavy Machinery Group Co are suffering from sluggish sales and
tight liquidity due to government curbs on real estate and
Rival Sany Heavy Industry aims to launch a
listing in Hong Kong, worth around $2 billion, IFR, a Thomson
Reuters publication, reported in May.
CITIC Heavy, based in central Henan province, is currently
the country's fourth-largest heavy machinery maker with a four
percent share of a fragmented market crowded with nearly 5,000
The company, whose clients include global mining giants Vale
and BHP Billiton as well as Chinese energy
firms such as China Shenhua Energy Co Ltd ,
posted a 27 percent gain in net profit last year, but has warned
investors that growth may slow due to economic uncertainty.
($1 = 6.3633 Chinese yuan)
(Additional reporting by Samuel Shen; Editing by Kazunori
Takada and Richard Pullin)