Stock Exchanges in China

Second-board firms likely to tie up 1tr yuan in capital

PUBLISHED : Tuesday, 13 October, 2009, 12:00am
UPDATED : Tuesday, 13 October, 2009, 12:00am

The latest 18 start-up firms due to list on the mainland's Nasdaq-style second board were likely to tie up a combined one trillion yuan (HK$1.14 trillion) in funds as they rolled out their initial public offerings this week, analysts predicted.

The China Securities Regulatory Commission has fast-tracked the listings to get the technology-heavy market up and running as early as this month. Today, nine small companies will offer shares to the public, hoping to raise a total of 4.2 billion yuan. On Thursday, nine more firms will conduct their listings to net about four billion yuan.

Analysts said the new shares would be much sought after as investors chased after future profit stars.

'As the second board draws near, a buying craze is taking shape as millions of investors are ready to pile their cash into the start-ups,' said Haitong Securities analyst Zhang Qi.

The first batch of 10 firms, which was given the approval to list on the growth market, attracted 780 billion yuan of subscriptions at the end of September.

The regulator hopes to list a dozen companies together when the second board officially debuts at the Shenzhen Stock Exchange.

To date, six million investors have opened accounts to trade shares on the second board. 'The regulator had hoped that more investors could participate in the market, but now it must be worried that over-speculation might undermine its growth,' said Essence Securities analyst Liu Jun.

Although the CSRC picked quality start-up firms to launch new share issues initially, analysts said many of them were already overpriced, based on the fundamentals.

Among the nine firms to float shares today, Beijing Dinghan Technology, an electrical equipment supplier, is offering 13 million shares at 37 yuan each, 82.22 times its 2008 earnings. Xinning Logistics is selling 15 million shares at 15.60 yuan each with the lowest price-earnings ratio of 45.5 among the nine.

On the Shanghai Stock Exchange, stocks trade at an average 25 times 2008 earnings, while on the Shenzhen bourse, the average was 36.6 times yesterday.

Beijing formally gave the approval to the long-heralded second board last month to enable cash-hungry small firms to raise growth capital.

Millions of investors are expected to flock to these stocks as they hope to get rich overnight, believing the start-ups will report strong earnings growth. Analysts warned that only a few firms were likely to meet investors' profit expectations.