Global market woes cast chill on China fund-raising
SHANGHAI (Reuters) - Listed Chinese firms put more than $1 billion of fund-raising plans on ice on Friday as the global credit crisis and falling share prices begin to cast a chill over China's fast-growing economy.
Chinalco, China's largest aluminum producer, and its listed unit, Chalco (601600.SS) (2600.HK), put on hold the planned issue of a combined 8 billion yuan ($1.2 billion) worth of five-year corporate bills. Traders said the move could be related to the failure of Lehman Brothers or linked to potential production cuts the company was planning.
Sichuan Hongda (600331.SS), which makes zinc oxide and other chemicals, said it had canceled a 2 billion yuan share placement while power generation equipment maker Lanzhou Great Wall Electrical (600192.SS) called off a placement worth 367 million yuan.
"The weakness in the stock market is now spreading to the real economy, and the government still appears not to be doing enough," said Jin Dehuan, senior economist at the Shanghai Securities and Futures Institute.
Many analysts have long argued that falls in China's stock market, down almost 70 percent in the past year, should not have a sizeable impact on the real economy because the market is still small and the bulk of shares are not freely traded.
But so far in the second half of this year, about a dozen Chinese companies, pointing to a sharp drop in share prices, have said they would abandon or delay share-linked financing plans, including big names such as Shenzhen Development Bank (000001.SZ) which canceled a placement with Baoshan Iron and Steel (600019.SS).
"Worse is yet to come. With the asset value of listed companies plunging so rapidly, their degree of leverage is jumping," said Jin.
"Banks worrying about the safety of their money would push these companies to repay their loans and be more reluctant to lend, causing a vicious cycle of deteriorating conditions for economic development."
CLOSELY CONNECTED
In Chinalco's case, banks underwriting the state-owned parent company's 3 billion yuan in bills said the issue was suspended because it needed to clarify rumors that could influence investors.
Britain's Telegraph newspaper has reported that shares owned by Chinalco in Rio Tinto (RIO.L) were stuck in a custodial account for Lehman Brothers in Hong Kong, and traders believed that report was behind the suspension.
While Chinese bankers and policy-makers have noted that China was largely insulated from the global credit crisis by its strict capital controls and low exposure to toxic U.S. mortgage-backed assets they acknowledged that its financial system could not entirely escape the impact.
"I don't think China's banking industry will emerge completely unscathed from the crisis because our economies are so closely connected," Jiang Jianqing, president of China's largest bank Industrial and Commercial Bank of China (601398.SS), said on Thursday.
The chill over the stock markets is also taking its toll on China's economy, blocking off vital sources of funds.
The volume of initial public equity offers has fallen every month since April, shrinking to only 495 million yuan in September from a record high of 150 billion yuan in the same month of last year.
Analysts also note that the combined market capitalization of the Shanghai and Shenzhen stock exchanges has shrunk by more than two-thirds from its peak late last year to only $1.8 trillion, less than half of China's GDP.
"The market is now highly represented in key sectors including banking, oil, metals and property, and a slowing of expansion of companies in these industries will be a bad omen for China's economy," said senior stock analyst Zheng Weigang at Shanghai Securities.
He and other analysts believe the government will move to boost domestic consumption, including further monetary easing and an eventual depreciation of the yuan against the dollar.
($1 = 6.83 yuan)
(Editing by Edmund Klamann and Lincoln Feast)
