Cinda soars but fellow debutants count losses

While asset manager closes up 25pc, traders dump Qinhuangdao Port and Jintian Pharma

PUBLISHED : Thursday, 12 December, 2013, 9:59am
UPDATED : Friday, 13 December, 2013, 3:01am

China Cinda Asset Management made a stunning debut on the Hong Kong stock exchange yesterday, defying the cautious mood in the market that contributed to a poor start for two other mainland companies on the day.

Shares in the state-owned distressed asset manager surged as high as 33.8 per cent before closing at HK$4.50, 25.7 per cent above the offer price.

The benchmark Hang Seng Index fell 0.51 per cent, before the US Federal Reserve's monetary policy meeting next Wednesday that might provide clues on when the central bank could start tapering its US$85 billion monthly bond-buying programme.

Cinda's performance would boost sentiment at a time investors are taking profits by selling blue-chip mainland banking and insurance stocks after the People's Bank of China refrained from injecting funds into the system by suspending its bi-weekly open market operations, the first time it has done so since the end of October.

Apart from the uncertainty over tapering, the escalating Sino-Japanese tensions over the Diaoyu islands have also prompted investors to cash out before the end of the year.

"The rising need for banks to dispose of their non-performing loans off their balance sheets is a key growth driver for Cinda," Nomura analysts said in a research note.

"With the US QE (quantitative easing) tapering as the backdrop, we believe Chinese banks' liquidity is likely to remain at relatively tight levels over the next three to five years."

The highly anticipated Cinda initial public offering was well supported by both institutional and retail investors, giving a much-needed psychological boost to the city's listing market.

Cinda, which was set up in the late 1990s to deal with an estimated 1.4 trillion yuan worth of non-performing assets amassed by mainland banks, leaned heavily on 12 cornerstone investors, pre-selling more than 40 per cent of its US$2.5 billion initial offering.

It plans to increase the leverage of its balance sheet with a view to grow on the back of an ample capital base. After the listing, Cinda's capital adequacy ratio will stand at 23 per cent, well above the officially required level of 12.5 per cent.

Asked to comment on slowing return on equity for the past three years, Cinda chairman Hou Jianhang said: "The company has been actively undergoing the process of fine-tuning its business model and will adopt a cautious stand to write off non-performing assets, depending on its development in the future."

Though Cinda's solid trading debut has raised the market's optimism, shares in Qinhuangdao Port - the operator of the world's largest coal port - plunged 6.3 per cent yesterday to HK$4.92 on its first day. The decline came despite the state-owned company pricing the shares at the bottom of its indicative range.

Jintian Pharmaceutical, which also started trading yesterday, did even worse as its stock plummeted 18.6 per cent. Punters had placed high hopes on the mainland drug retailer and distributor given the government's emphasis on health care and expectations of reforms in the sector.

The performance of Jintian, backed by private equity firm CVC Capital Partners, stands in sharp contrast to Phoenix Healthcare, whose shares have risen 60 per cent since its listing late last month.