April 28, 2011 / 2:16 AM / 8 years ago

UPDATE 3-China's Pangda shares plunge 23 pct on Shanghai debut

* Pangda’s share drop reflects weak market sentiment, auto market

* Investors find it hard to evaluate China’s 1st car dealer IPO-analyst

* Companies raise $16.9 bln in Shanghai, Shenzhen ytd vs $4.2 bln in HK (Updates with closing share price, graphic on top IPOs)

By Fang Yan and Ai Peng Soo

SHANGHAI, April 28 (Reuters) - Shares of Chinese car dealer Pangda Automobile Trade Co Ltd , which raised nearly $1 billion in an IPO, fell 23 percent on their trading debut in Shanghai on concerns of slowing auto sales and rising stock market volatility.

Pangda, which became the first publicly traded car dealer in China, floated the nation’s second-biggest IPO so far this year at a time when its auto sector is expected to experience slowing growth after years of breakneck expansion.

The trading debut on Thursday also coincides with a sharp fall on the B-share market this week, amid speculation that the regulator may impose a capital gains tax on the dollar-denominated market, catered mainly to foreign investors.

Shanghai’s B-share index of dollar-denominated stocks fell more than 7 percent in early trading on Thursday.

“It’s not a big surprise as quite a few companies have dropped below their IPO prices recently due to adverse market conditions,” said Wu Wenzhao, analyst at Sinolink Securities Co, referring to Pangda’s trading debut.

“Investors are struggling to put a fair value on a car dealer, even though Pangda has good fundamentals. I think in the long run the slump creates buying opportunities,” Wu said.

Pangda shares traded at 36 yuan a share at the open, compared with an IPO price of 45 yuan a share. At the close, the stock was down 23.2 percent at 34.58 yuan. The benchmark Shanghai Composite Index was down 1.3 percent after opening up 0.4 percent.

Based in the northern Chinese province of Hebei, Pangda’s IPO was the second major deal on the yuan-denominated A-share market this year after wind turbine maker Sinovel Wind’s $1.4 billion IPO in January.

UBS was the lead underwriter for the Pangda IPO, while Zhong De Securities, the Chinese joint venture of Deutsche Bank (DBKGn.DE), handled the Sinovel IPO.

SLOWING CAR MARKET

Car sales growth in China, the world’s largest auto market, is expected to slow to 10-15 percent in 2011, down from the 32 percent gain in 2010, industry observers say.

The scrapping of tax incentives for small cars at the start of the year is one factor seen weighing on the market.

“It’s not good timing for auto dealers to go public as the auto market is cooling down in the first quarter and no one is actually expecting a major rebound for the rest of the year,” said Boni Sa, an analyst with IHS Automotive.

“Although demand in tier three and tier four cities remains solid and the market will end the year a positive note, it will be way off the frantic pace in 2009 and 2010,” said Sa.

On top of a slowing market, Pangda, which handles the Toyota , Honda and Subaru brands, is also suffering from the fall-out of Japan’s devastating earthquake and tsunami which has disrupted supply chains.

Mazda Motor’s China car sales has declined for three straight months since January, while Toyota Motor has said its output would return to normal in November or December. [ID:nLKE7DP01W]

BIGGER DEALS

Sinovel shares, which fell 10 percent on their trading debut on January 13, have fallen 19 percent since the listing.

So far this year, there has been a lack of big IPO deals on the mainland markets, with deals by small- and medium-sized firms dominating.

The Shenzhen Stock Exchange, which houses the ChiNext start-up board, has hosted 89 IPOs worth a combined $12.1 billion so far in 2011, Thomson Reuters data shows. That compared with 95 deals worth a total $12.4 billion in the same period last year, according to the data.

The larger Shanghai Stock Exchange, however, has hosted only 11 deals worth a total $4.8 billion, down from 10 deals worth $7.9 billion a year earlier, while the Hong Kong market has had 15 deals worth a combined $4.2 billion, the data showed.

Hong Kong has attracted several high-profile IPOs this year such as commodity trader Glencore which aims to raise up to $12.1 billion with a dual listing.

But China could still see big IPO deals later this year.

Despite the slowing growth outlook, Hong Kong-listed car makers BYD Co Ltd and Great Wall Motor Co Ltd have said they want to return to the mainland stock market later this year.

Other Chinese companies including Bank of Jiangsu, Guangdong Development Bank and New China Life have also said they are preparing a listing on the mainland later this year.

Guangdong Development Bank is planning a dual-listing in Hong Kong and Shanghai to raise about $4.5 billion in the third quarter of this year, IFR, a Thomson Reuters publication, reported this month.

China has said it wants to increase direct financing, such as IPOs and debt financing, in the economy to fund its next stage of growth.

The country’s latest IPO frenzy has not done any major harm to its stock markets, Zhu Congjiu, assistant to the chairman of the CSRC, said in March. [ID:nTOE72605E]

China is actively preparing an international board on the Shanghai Stock Exchange which will allow foreign companies to list on the mainland stock market. (Additional reporting by Samuel Shen; Editing by Dhara Ranasinghe and Muralikumar Anantharaman)

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