Sinohydro ends up 17pc in frenzied IPO

PUBLISHED : Wednesday, 19 October, 2011, 12:00am
UPDATED : Wednesday, 19 October, 2011, 12:00am

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Shares of Sinohydro Group got off to a frenetic start yesterday, soaring 17 per cent on their Shanghai listing debut as a flood of speculative capital caused a half-hour trading suspension in the morning.

The mainland's largest dam builder opened on the Shanghai Stock Exchange at 4.78 yuan (HK$5.82), 6.2 per cent higher than its offering price of 4.5 yuan before hitting an intraday high of 6.22 yuan before 11am, leading the bourse to halt trading of the shares for 30 minutes.

According to exchange rules, a 30-minute suspension will be conducted if a newly listed stock jumps more than 30 per cent from the opening price on the first trading day, a move to curb over-speculative bets.

Sinohydro shares eased in the afternoon session, closing at 5.27 yuan, up 17.11 per cent from the initial public offering price.

'It wasn't the company's fundamentals that resulted in the buying euphoria,' said Dazhong Insurance fund manager Wu Kan. 'Speculators were looking to chase short-term gains, flocking to the debutant and causing the wild swings.'

As the dam builder soaked up funds from the market, the benchmark Shanghai Composite Index lost 56.92 points or 2.33 per cent to close at 2,383.49.

Sinohydro's IPO, the largest A-share offering so far this year, was issued amid weak market sentiment.

The company, which has built about two-thirds of the mainland's domestic hydropower projects, was forced to reduce the size of offering, netting 13.5 billion yuan by floating 3 billion shares, 22 per cent less than it originally targeted.

Yesterday, its 1.5 billion shares offered to the general public started trading, while the remaining 1.5 billion shares sold to institutional investors will be listed on the Shanghai exchange in three months.

Turnover of Sinohydro was valued at 7 billion yuan yesterday, more than one-tenth of the exchange's total. A combined 14.1 billion shares of Sinohydro changed hands, or 94 per cent of its total volume listed.

'It was obviously the speculative funds that flooded Sinohydro and caused a huge liquidity drain on the existing stocks,' said Shenyin Wanguo Securities analyst Qian Qimin. 'The active trading of Sinohydro reflected investors' lack of confidence in the overall market.'

The volatile trading on Sinohydro left thousands of speculators counting the cost as those who bought the shares at intraday high of 6.22 yuan lost 23 per cent of their investment.

Brokerages predicted Sinohydro would post per-share earnings of 0.38 yuan for 2011 and yesterday's closing price translated into price-to-earnings multiple of 12.6.

Sinohydro is expanding aggressively in overseas markets and it has projects in more than 50 countries. Northeast Securities analyst Wang Shi said the company is exposed to political risks abroad that could dent its profits.

The dam builder's A-share IPO is likely to be eclipsed by China Communications Construction soon, which seeks to raise 20 billion yuan in Shanghai, the mainland's largest new share sale this year.

130

Number of gigawatts that Sinohydro says its hydroelectric dams can produce, including the Three Gorges Dam completed in 2008