Poor trading debuts prompt investors to shun mainland IPOs
Daniel Ren in Shanghai
The recent initial public offerings on the mainland have seen lukewarm response from investors following a series of poor first-day performances.
Qingdao East Steel Tower, due to list in Shenzhen, drew the smallest subscription in history with the portion for public investors only 10 times oversubscribed, a rare phenomenon on the A-share market. The offering of 43.5 million shares attracted 14.9 billion yuan (HK$17.62 billion) in subscription money. Of the shares, 34.8 million are for public investors.
New offerings are generally seen as a safe bet, bringing investors handsome gains on debut. It is not uncommon for new offerings to be oversubscribed by more than 100 times. But a series of lacklustre listing debuts this year dampened investor enthusiasm somewhat, prompting the securities regulator to revamp the system.
There have been 26 new listings so far this year and half of them crashed below their offer prices on their first trading day. Sinovel Wind (Group), a wind power turbine maker that launched the most expensive initial public offering in Shanghai, saw its shares dive 9.6 per on debut.
'The fast pace of IPO approvals has weighed on investors,' Dazhong Insurance fund manager Wu Kan said. 'It is becoming increasingly difficult for companies to float shares on the market.'
The China Securities Regulatory Commission has the final say on the timetable of new listings.
Before this year, nearly all offerings were hugely successful as investors snapped up new shares to chase safe first-day returns. A record 349 companies listed on the Shanghai and Shenzhen stock exchange last year, raising 478.3 billion yuan. The mainland was also the largest market worldwide for new listings although the benchmark Shanghai Composite Index fell 14.3 per cent last year, making it the world's third-worst market.
The CSRC has let underwriters and companies decide the price of new shares since it resumed the listing market in June 2009 following a nine-month hiatus.
Before that, all new shares were priced at about 20 times earnings as the regulator artificially set lower prices to facilitate fund-raising by state-owned companies. Investors rushed to buy new shares even under the new mechanism.
New shares have now become unreasonably expensive, according to analysts. Sinovel, for example, sold shares at 90 yuan each, 49 times earnings. They closed at 72.92 yuan yesterday, down 19 per cent from the issue price.
New share offerings were usually more than 100 times subscribed
The number of times the retail portion of Qingdao East Steel Tower share s in the offering was oversubscribed: 10