Demand cool for coal machinery firm
Zhengzhou Coal Mining falls 8.8 per cent on debut after stock offering is undersubscribed by 12.6 per cent, despite market pickup
The Hang Seng Index surged yesterday to a high for the year following a meaningful pickup in the mainland market and continued hot money inflows.
Despite this, shares of Zhengzhou Coal Mining Machinery fell 8.8 per cent on their trading debut, suggesting poor demand for coal mine equipment because of overcapacity on the mainland.
Faced with investor indifference, three global co-ordinators and joint book runners took up a combined US$37.15 million worth of unsold shares, or 12.6 per cent of the deal, according to a filing by the company lodged with the Hong Kong stock exchange.
Citic Securities, UBS and Deutsche Bank bought 22.4 million, 4.65 million and 710,000 shares, respectively.
The lacklustre price movement of Zhengzhou Coal on the Shanghai Stock Exchange, where its shares have been trading since 2010, over the previous five days also contributed to the "unsatisfying" debut in Hong Kong, a person with direct knowledge of the deal said.
Underwriters rarely subscribe to an initial public offering on their own account.
Normally they would lower the issue price or cut the offering size to ensure the listing was well taken up.
In this case, the underwriters were forced to buy large portions, as the 221.1 million shares were already priced at HK$10.38, the bottom of the indicative range, and the offering's size was at the minimum required level.
The firm had offered its H shares at a 15 per cent discount to its A shares, but that still failed to generate enough demand from institutional and retail investors.
"Investors have little interest in this stock given the persistent weak order books for coal machine tools in China due to poor demand for coal amid a slowdown in economic growth and overcapacity," said Yang Wei, a portfolio manager at Shenyin Wanguo Asset Management (Asia). "The underwriters' intervention just fuelled such negative sentiment."
Mainland coal producers did not expect any improvement in their coal sales last month because of weak demand, a Credit Suisse report by Trina Chen said.
The month-on-month sales trend was bearish for mainland machinery makers, the report said. The price of benchmark domestic thermal coal at Qinhuangdao with a calorific value of 5,800 kcal/kg declined to about US$93 per tonne last month from US$106 per tonne in the first quarter of this year, according to the report.
Credit Suisse said coal prices could stabilise at this level in the coming months, with a possibility they might pick up slightly because of seasonal demand for coal power generation and the weakening hydroelectric power supply.