Air China's scaled-back IPO fails to lift demand

PUBLISHED : Thursday, 10 August, 2006, 12:00am
UPDATED : Thursday, 10 August, 2006, 12:00am

Share sale just 18.8 times oversubscribed by investors using public trading system

Even after slashing the size of the share sale by almost 40 per cent and pricing it at the bottom of the range, Air China's initial public offering was just 18.8 times oversubscribed, making it the least popular IPO since the online order system was established in the 1990s, according to sources.

The carrier yesterday drew orders totalling 43.1 billion yuan for its 2.3 billion yuan offering from retail and institutional investors using the public trading system, according to a source close to the deal.

By contrast, Bank of China's 20 billion yuan IPO in June was 51.8 times oversubscribed while Daqin Railway's 15 billion yuan offer drew orders for 71.4 times more shares than were available.

'Air China got the lowest oversubscription ratio through ordering online among all the new listings since the 1990s,' an investment banker said.

Air China officials could not be reached for comment yesterday.

Under China's stock market rules, individual and institutional investors who choose to do so, place orders for new offerings only after the firm has sold shares to institutions through private placements. Some institutional investors prefer to buy shares in the second stage of the process because that allows them to escape the requirement that stock bought via private placement be held for anywhere from three months to 18 months for strategic investors.

'The ratio shows that not many people like Air China,' said Tan Jieying, a fund manager with Chang Xin Asset Management.

On Tuesday, the mainland's largest international carrier cut the size of its IPO to 4.7 billion yuan from the original eight billion yuan in the face of lacklustre demand from institutional investors, put off by Air China's relatively high asking price and doubts about the profitability of the airline business amid soaring fuel costs.

The relatively weak demand for such a high-profile offer also signals a waning appetite for IPOs among mainland investors who spent 36.7 billion yuan on new shares in the first six months, according to figures from the People's Bank of China released yesterday.

Nevertheless, some IPOs continue to draw massive investor interest. Beijing Ruitai High-temperature Materials & Technology, which is selling shares on the Shenzhen stock market, was 104 times oversubscribed in the private placement phase of the sale.

Two small companies, Kunming Horti-Expo Garden and Guangdong No2 Hydropower Engineering, which are set to sell shares today in Shenzhen, received even more enthusiastic responses from investors. Kunming Horti-Expo was 1,407 times oversubscribed while Guangdong No2 Hydropower was 753 times oversubscribed, according to their listing documents.