Alarm at Baling's failed ipo bid
Nanning Baling Technology's failed initial public offering set the alarm bells ringing in the mainland's stock market as beleaguered investors start to shun once safe bets in the world's biggest IPO market.
Baling was forced to halt its offering process following unsuccessful price consultations with institutional investors, becoming the first mainland company to do so.
In a statement, only 19 institutions took part in the consultations that ended on Tuesday, just one fewer than the minimum of 20 participants required by the securities regulator. The rules governing listings stipulate that Baling, a maker of heat exchange products used in vehicle production, had to suspend its offering.
Baling planned to raise 298 million yuan (HK$358 million) by floating 18.9 million shares on the Small and Medium Enterprise board of the Shenzhen Stock Exchange. Some 3.78 million shares had been set for institutional and corporate investors in a so-called offline subscription.
Previously hundreds of powerful institutions including mutual funds, insurers and companies would flock to offline subscriptions as offering shares usually brought investors handsome first-day gains when the firm's trading debuted.
Institutions gave Baling the cold shoulder as they were not convinced of the company's earnings outlook, analysts said.
Baling's sales to SAIC-GM-Wuling Automobile accounted for 47 per cent of its total in 2008. In 2009, the percentage grew to 64.4 and the figure for last year stood at 60 per cent. The company's earnings would be largely affected if the carmaker found an alternative supplier to replace Baling, analysts said.
'It was not a surprise because the mainland IPO market is in a kind of crisis since investors began to protest against the irrational fund-raising spree,' Hotung Ventures fund manager Ray Lu said. 'A large number of new share offerings were not worth the price.'
China was the world's largest IPO market last year as Beijing fast-tracked approvals to help hundreds of cash-hungry firms raise capital.
The benchmark Shanghai Composite Index lost 14.3 per cent last year, battered by the influx of fresh capital and monetary tightening, the world's third-worst performing indicator.
Investors and analysts called on the China Securities Regulatory Commission to slow down the pace of offerings following a series of woeful performances of newly listed stocks. So far this year, about 60 per cent of newly listed firms on the A-share market have crashed below their offering prices.
A total of 35 offerings were launched in January on the Shanghai and Shenzhen exchanges, before the regulator cut the number to about 25 each month between February and May. Investors vented their anger towards the CSRC after they suffered losses.
Before 2009, Beijing set new share prices artificially low to aid the fund-raising activities of state-owned companies.
Nearly all offering stocks proved an easy sale when they hit the market, while issuers and underwriters had little say in the pricing.
In mid-2009, the mainland reformed the listing mechanism, letting companies and sponsors use market forces to set the price. Yet, the regulatory commission still had the power to control the number and timing of the listings.
'Sooner or later, investors will entirely shun new offerings because it seems they will perennially lose money in investing in IPOs,' Essence Securities analyst Liu Jun said. 'The IPO market will not be used by powerful and resourceful people to milk the small investors.'
In January, new stocks were offered at an average price-earnings ratio of 73. At that time, listed companies traded an average 21 times their earnings.