November 2, 2012 / 2:00 AM / in 5 years

UPDATE 2-China's Zhejiang Shibao jumps over 6 times on Shenzhen IPO

* Shares trade as high as 17.19 yuan vs offer price of 2.58

* Trading suspended again after triggering more circuit breakers

* Highlights challenges facing regulator in speculative market (Adds analyst comment)

By Kazunori Takada and Samuel Shen

SHANGHAI, Nov 2 (Reuters) - Shares of Chinese auto parts maker Zhejiang Shibao Co Ltd jumped by more six times on its Shenzhen debut on Friday, the second time in less than a month that heavy-handed intervention by China’s stock market regulator has led to a first-day scramble.

The firm had cut its fundraising plan by more than 90 percent to 38.7 million yuan ($6.2 million) under pressure from the China Securities Regulatory Commission’s (CSRC), leading to a frenzy of interest that saw demand for the IPO at more than 700 times the number of shares on offer.

“This price has nothing to do with fundamentals. Zhejiang Shibao is a natural target for speculation because of its downsized issuance and reduced price,” said Luan Zhao, analyst at Xiangcai Securities in Shanghai.

In fact, the company, which produces steering products for car makers including Chery Automobile Co Ltd and a Volkswagen AG joint venture in China, said on Friday it expects its 2012 profit to fall up to 31 percent due to a slowing economy.

The surge in the share price is in contrast to earlier in the year, when the regulator was under fire for failing to stop overpriced IPOs that fell on debut.

Trading of Shibao shares was temporarily halted five minutes into the session after triggering a turnover circuit breaker, and suspended again after hitting a price cap. Trading will resume in the afternoon.

They rose as high as 17.19 yuan, compared with the offer price of 2.58 yuan.

IPO INTERVENTION

Shibao raised less than a tenth of the 510 million yuan initially planned, after selling 15 million shares to investors including Guodo Securities, H u atai Asset Management and North Industries Group Finance Co. Ltd.

The downsizing was a result of pressure from the CSRC to sell the mainland-traded shares at a level similar to those listed in Hong Kong.

While such a heavy-handed approach by the regulator may be a headache for both fundraisers as well as underwriters, companies have little choice but to turn to the capital market for money as Beijing tries cut down on heavy reliance on bank lending.

The CSRC had been criticised by investors who were burned after buying into share offerings that were priced at lofty valuations and fell sharply after their market debuts.

Earlier this year, it introduced rules to curb speculative trading related with share offerings, including setting caps on price moves and turnover rate on the first day of trade.

Most recently, the CSRC stepped in on the offering of China Molybdenum Co Ltd , which nearly tripled on its Shanghai debut in October after downsizing its mainland listing by 80 percent.

“You have political considerations at the moment, with the leadership change next week,” said Philippe Espinasse, a former investment banker with Nomura and UBS in Hong Kong and author of ‘IPO: A Global Guide’.

“You may see more supply after that has happened next week and in the fourth quarter,” he added, referring to China’s once in a decade leadership change that kicks off next week.

Officials at the CSRC admit, although privately, that the task at hand is not an easy one.

“There’s a regulatory dilemma here. Any policy measures would fail to meet the needs of all market participants who demand very different types of interests,” said a CSRC official, speaking on condition of anonymity. (Reporting by Shanghai newsroom, Kazunori Takada and Samuel Shen; Additional reporting by Elzio Barreto Jr in HONG KONG; Editing by Michael Urquhart)

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