HONG KONG/SHANGHAI (Reuters) - Weak pricing for share sales by Citic Securities (600030.SS) and Sinohydro Group, along with a soft market debut for Great Wall Motor (601633.SS), showed greater China’s IPO markets, while still open, are buckling in the face of economic uncertainty and hefty supply.
Initial public offerings globally have ground to a halt because of volatile markets and sovereign debt concerns, shutting off a key supply of funding for companies and revenue for banks.
In Hong Kong, the world’s biggest IPO market for the last two years, some $4.5 billion worth of deals were pulled just last week by companies including Sany Heavy Industry (600031.SS) and rival XCMG Construction Machinery Co Ltd (000425.SZ).
“The situation is pretty poor right now,” said Jasper Chan, corporate finance officer at Phillip Securities Ltd in Hong Kong. “The investment banks are hungry for any business, so they pushed these IPOs to the market. It’s not a recovery,” he added. “Demand is not there, absolutely.”
Demand is likely to be tested further with some $35 billion in share sales expected in Hong Kong and Shanghai in coming months from financial services companies alone.
Underscoring the continued flood of new equity, China Communications Construction Co Ltd (1800.HK), the country’s largest builder of ports, won approval for a 20 billion yuan ($3.1 billion) IPO in Shanghai which could become the biggest offering on the mainland so far this year.
Citic Securities Co Ltd, China’s largest publicly traded brokerage, priced its Hong Kong share sale at the bottom of a revised range, four sources with direct knowledge of the matter told Reuters on Wednesday. The company will now raise about $1.7 billion from the offering.
Elsewhere Sinohydro, China’s largest dam builder, is raising 13.5 billion yuan ($2.1 billion) from an IPO in Shanghai, a fifth less than it originally sought, after setting the price at the bottom of an indicative range. It will sell 3 billion shares at 4.50 yuan each, it said in a statement.
Shares of automaker Great Wall Motor, meanwhile, fell as much as 9.2 percent on their Shanghai debut, with an uninspiring outlook for the industry adding to the weak sentiment.
Among other offerings slated before the end of the year are share sales from Haitong Securities, insurer New China Life and China Guangfa Bank.
The fact that Chinese companies are still considering public offerings in such uncertain times reflects their need to raise cash, China’s relatively strong economic growth outlook and the country’s time-consuming and opaque listing approval process.
Companies seeking to list in mainland China often wait years for approval, then must proceed within six months.
But in many cases, companies are cutting the size of their offerings to generate interest. Earlier this week for example, Sinohydro cut the size of its Shanghai IPO by about 14 percent.
Companies have so far raised $32.3 billion from first-time share sales, down 42 percent from a year earlier, Thomson Reuters data showed.
“The capital market is under immense pressure. There is not enough demand,” Sinohydro Chairman Fan Jixiang told investors on an online roadshow on Monday. “We must take into consideration liquidity conditions in the market as well as the actual value of the company, so we proactively cut the size of the issue.”
Even with the lower pricing, Citic Securities’ deal will be the biggest stock offering in Hong Kong since the $2.5 billion IPO by luxury goods maker Prada (1913.HK) in June.
Citic Securities had enough commitments from cornerstone and anchor investors including Temasek Holdings Pte Ltd TEM.UL, U.S. asset manager Waddell & Reed (WDR.N) and hedge fund Och-Ziff Capital Management (OZM.N) to fully cover its deal, sources said previously, easing concerns it could be derailed because of growing market volatility.
Hong Kong's benchmark Hang Seng index .HSI has plunged about 13 percent in September alone and fell to a 26-month low on Monday, making it harder for companies to tap risk-averse investors and demand top valuations when selling stock.
Great Wall, China's top manufacturer of sport utility vehicles and pick-up trucks, raised 3.96 billion yuan ($619 million) from its Shanghai offering. Its shares closed down 8.9 percent while the benchmark Shanghai Composite Index .SSEC ended down 1 percent at its lowest close in almost 15 months.
“Many new listings had traded below their IPO prices recently. There will be more to come as this has become a norm now,” said Zhang Yanbing, an analyst at Zheshang Securities in Shanghai. “Companies need to adjust their plans to reflect market realities or they will have a hard time selling their shares.”
($1=7.796 HK dollars)
Additional reporting by Fiona Lau; Writing by Matt Driskill; Editing by David Holmes