Port builder rises 23pc as concerns fade
Shares of China Communications Construction (CCC) made a strong debut on the Shanghai Stock Exchange yesterday as investors took heart from the upbeat remarks by the chairman of the country's largest port builder.
Shares opened at 6.99 yuan in the morning, up 29.4 per cent from the offering price of 5.4 yuan, before ending at 6.66 yuan, 23.3 per cent higher.
The hefty gain was in line with expectations of analysts who believed the port builder's 5 billion yuan (HK$6.1 billion) initial public offering was greatly undervalued after it cut the fund-raising size by 75 per cent from the original target of 20 billion yuan.
'CCC's IPO was a result of compromise with the regulator's directions and market sentiment,' said Zhongde Securities analyst She Minhua. 'The hefty first-day gain showed concern had been overplayed during the subscriptions.'
CCC's offering price of 5.4 yuan translated into a price to earnings ratio of 7.68, the lowest in the history of China's stock market.
Its lead underwriters - BOC International and Guotai Junan Securities - were forced to take up 102 million unsold shares following a lukewarm response to the world's biggest IPO so far this year.
BOC International had predicted the shares could trade at 7.10 yuan, while Guotai Junan expected them to top 7 yuan.
Under pressure from the China Securities Regulatory Commission (CSRC) after newly appointed chairman Guo Shuqing pledged to curb lofty IPO prices to protect investors' interests, CCC slashed the size to facilitate fund-raising.
However, statements by chairman Zhou Jichang earlier this week designed to shore up investor confidence in CCC sparked buying euphoria surrounding the stock.
More than two-thirds of CCC's shares changed hands yesterday.
'I had full confidence in CCC's performance because the offering price, with a price/earnings ratio of between only 7 and 8, was below the lowest level of my expectations,' Zhou told the Beijing Times in an interview. 'I had expected the shares could be offered at a minimum p/e ratio of 10.'
In order to soothe investor concerns about CCC's potential losses abroad, Zhou said the state-owned construction giant, whose overseas businesses contributed one-third of its total profits, did not see a single loss-making project outside the mainland.
He said construction of US$1 billion worth of unfinished projects in Libya had been resumed. The company had US$2 billion worth of projects in Libya, comprising mainly housing construction, of which more than US$1 billion had yet to be completed, Zhou said.
The closing price of CCC's Shanghai-listed shares yesterday represented a 4.9 per cent premium to its Hong Kong-traded counterpart, which nudged up 0.77 per cent to HK$7.81 yesterday.
Guo has been striving to bring down IPO prices since he took office at the CSRC in late October.
The former China Construction Bank chairman said frothy IPOs on the mainland market had hurt the interests of retail investors.
It was reported that details of the IPO reform would be published by the CSRC over the weekend.
CCC was among several companies that had to slash IPO prices and volumes amid the weak market.
Since February, 15 newly listed stocks in China posted an average first-day gain of 46 per cent, according to Wind Information.