Taking the easy way out

OFFICIALS of three newly listed companies took the easy way out to explain why their trading debuts failed last week.

'Bad market sentiment' is a handy explanation these days.

It is unfair to blame the disappointing share performances on the market environment alone, without admitting some faults in the companies' fundamentals and pricing strategy.

While it is investment bankers' responsibility to secure the highest issue price possible for a listing candidate, an overly aggressive pricing strategy can easily damage the subscription rate and secondary trading activities, especially when the market is bearish.

If an initial public offering is below full subscription, it exerts additional pressure on the stock performance.

There is an over-hanging fear that underwriters and investors will offload the redundant shares.

It is undisputable that market sentiment has played a role in influencing the performance of the stocks because the new issues are now more expensive than two weeks ago when the price was fixed.

So investment bankers have to find a formula which balances a group of variables, including issue price, company fundamentals and timing.

Among the three companies newly listed last week, two are H shares issued by China's state-owned enterprises Chengdu Telecommunications Cable and Harbin Power Equipment.

Chengdu Telecom was down 13 per cent and Harbin Power three per cent on their first trading days.

The Chinese counters, including Zhenhai, had been criticised for stretching their issue price to the high end of a proposed range.

It may be too early to say what alarm bells are ringing for H shares. After all, China still holds allure as a fast-growing economy.

But the bitter taste of Shanghai Haixing Shipping's aborted listing plan five months ago remains, although it finally pulled off the flotation last month.

In July, the shipping company refused to accept a price earnings multiple of below ten times, as required by underwriters.

It is hoped that lessons will be learned from the latest disappointing share performance.