China Life rises 106pc on first day in Shanghai
Jamil Anderlini in Beijing
Mainland insurance leader doubles in value and becomes world's No2 player
Shares in China Life Insurance surged 106.2 per cent on their Shanghai debut yesterday, making it the world's second-largest insurer by market value.
China's biggest insurer closed at 38.93 yuan, more than doubling its initial public offering price of 18.88 yuan and a premium of more than 50 per cent over its Hong Kong-listed shares, which dropped 4.66 per cent yesterday to close at HK$25.60.
During its share sale last month, China's second-largest and the first by an insurer, the company attracted a record 832.5 billion yuan worth of orders, about 30 times the 28.3 billion yuan on offer.
About 320 million shares changed hands in heavy opening trade, about 53 per cent of the 600 million that were not locked up by strategic investors.
'This is the major Chinese insurer and it has effectively allowed its shares to be sold for half the price the market says is fair,' said Fraser Howie, a co-author of Privatizing China: The Stock Markets and Their Role in Corporate Reform. 'We're trying to say this market is becoming more fundamental but if anything, it's becoming less fundamental with the largest deals jumping the most on their first day.'
China Life's A-share closing price was 111 times its historic earnings compared with a price-earnings ratio of 76.17 for its Hong Kong-listed shares.
Its New York-listed American depositary receipts rose 12.15 per cent on Monday to US$53.91.
The firm listed shares simultaneously in Hong Kong and New York in December 2003 and has seen its price shoot up as global investors developed an even greater appetite for Chinese plays because of the country's strong economic growth.
Based on its A-share closing price yesterday, China Life overtook ING, Allianz and AXA to become the world's second most valuable insurer after American International Group.
'The price is obviously quite high but with such an immature market in China, the future profit potential is really huge, much bigger than any leading western insurer,' Citic Jiantou analyst Shi Minghua said.
Most analysts said the price could come down a little over the coming weeks but was unlikely to drop any lower than 35 yuan because of massive demand, particularly from institutional investors amid the mainland's burgeoning mutual fund industry.
'It's too expensive, the common folk can't afford to play this game,' said Su Hanyi, a retail investor who quit the market in 2001 in disgust and only began punting again in the past two months as the current bull run gathered pace.
With the disintegration of the formerly socialist welfare system, the country's insurers have seen rapid premium growth of more than 20 per cent in recent years.
The industry was given a huge boost last year by regulatory changes that eased numerous investment restrictions, allowing insurers to invest for the first time in banks, securities firms, companies, offshore markets and property.
The insurance regulator yesterday said it had approved China Life's bid to establish an asset management joint venture with US fund manager Franklin Templeton.
The new venture, based in Hong Kong, is expected to help manage China Life's offshore investments under the qualified domestic institutional investor scheme.