Two China IPOs rally in U.S. debut, one holds gains

By Phil Wahba

NEW YORK (Reuters) - Two Chinese companies made their U.S. trading debuts with strong rallies on Wednesday after going public on the New York Stock Exchange, but only one ended the day stronger.

Both deals showed a renewed interest among U.S. investors for Chinese companies, analysts said.

Water treatment equipment supplier Duoyuan Global Water Inc (DGW.N) closed 36.7 percent higher at $21.87, while specialty chemicals maker Chemspec International Ltd (CPC.N) ended at $9, its initial public offering price, after rising as much as 13.3 percent during the day.

The two deals bring the number of IPOs on a U.S. exchange to nine so far in 2009, with Chemspec the first not to rise in its debut.

"This tells us that the China story is still exciting to U.S. investors," said Paul Bard, the director of research at Connecticut-based Renaissance Capital.

"To a large extent, they fit the mold of what IPOs have been working as the market recovers -- they are established but growing companies that were pitched at attractive valuations."

Analysts said China's massive investment in its infrastructure explained Duoyuan's surge.

"The Chinese government will invest heavily in its infrastructure, including water supply, and Duoyuan as one China's foremost water-related companies will likely be a huge beneficiary of that," said Scott Sweet, managing director of advisory firm IPO Boutique.

Chemspec shares were more moderately received because it faces stiffer competition, Sweet said.

"Chemspec can be easily undercut in the Chinese market," Sweet said.

Chemspec, which primarily serves electronics and pharmaceutical manufacturers such as Eli Lilly & Co (LLY.N) and Merck KGaA (MRCG.DE), raised $72.7 million in its IPO Tuesday night after the deal priced at $9 per American Depositary Receipt, at the top of its estimated range.

Duoyuan ADRs started trading for $22.65, at a 41.6 percent premium over their offer price, while Chemspec ADRs started their trading at a 5 percent premium.

Earlier Wednesday, Duoyuan priced its ADRs for $16, above their estimate range, and sold 5.5 million of them, raising $88 million.

Chemspec warned that it is vulnerable to the costs of raw materials used in its products, such as fluorine and hydrofluoric acid, which accounted for 81 percent of the cost of its sales last year.