After year-long break, first wave of China IPOs to draw keen interest

Signs of strong investor appetite bode well for upcoming mainland listings

PUBLISHED : Friday, 10 January, 2014, 1:28am
UPDATED : Friday, 10 January, 2014, 5:00am

The two mainland companies that will kick off a new season of initial public offerings in the country are set to attract strong investor interest, a good omen for dozens of others lined up to tap stock markets this month after a year-long hiatus.

Signs of strong appetite were already in evidence during the book-building process, which analysts credited with reforms to the way new issues are priced on the mainland.

Guangdong Xinbao Electrical Appliances and Zhejiang Wolwo Bio-Pharmaceutical, the first two companies to publish offer price targets for planned listings in Shenzhen, were required by the new rules to discard the highest bids.

IFR, a Thomson Reuters publication, reported on Wednesday that Guangdong Xinbao had been forced to toss out all orders over 10.52 yuan (HK$13.36) per share, which had accounted for 44.5 per cent of the total subscription volume.

Regulators hope this new practice, combined with daily limits on price increases for new issues, will help prevent the sort of distorted pricing that caused many new listings to open to triumphant rallies, only to quickly fall below the offer price and languish there.

Economists have expressed concern that without fresh funds in the market, the looming flood of new listings may dilute overall valuations.

Beijing appeared to address that concern on Wednesday as state media reported that domestic insurers would be allowed to buy shares on the small-cap ChiNext exchange in Shenzhen, where many of the new listings will take place, and by encouraging state-owned firms to buy back their own shares, which would offset the dilutive effect of new listings.

Many more listings are on the way, with about 50 expected this month and more than 750 in the pipeline. About 200 billion yuan is expected to be raised this year, twice the amount raised in 2012 before the freeze.

The largest new listing planned so far is the 9.8 billion yuan deal announced by Shaanxi Coal Industry in Shanghai on Tuesday, which would be the largest flotation in the country since 2011 but is half the amount originally planned.