Hot start in Shaanxi Coal prompts market suspension

PUBLISHED : Wednesday, 29 January, 2014, 5:02am
UPDATED : Wednesday, 29 January, 2014, 5:19am

Shaanxi Coal Industry made a dramatic debut on the Shanghai Stock Exchange yesterday, prompting the regulators to suspend trading in the stock to curb speculation on newly listed issues in a weak market.

Shares of the mainland's third-largest coal producer surged 44 per cent to 5.76 yuan (HK$7.38) from their initial public offering price of four yuan right after the market's opening bell, triggering a trading halt in accordance with circuit-breaker rules.

Shaanxi Coal was suspended until 2.55pm, five minutes before the market close. It last traded at 4.55 yuan, still a gain of 13.75 per cent for investors.

"IPO shares are the bright spots these days as investors believe they can chase returns from volatile trading," said West China Securities analyst Wei Wei.

Shaanxi Coal raised four billion yuan from the float, the largest since Beijing lifted the 15-month listing ban this year.

Eight other stocks that started trading on the Shenzhen exchange yesterday were also suspended after their prices soared.

The benchmark Shanghai Composite Index closed 0.26 per cent higher.

The China Securities Regulatory Commission reopened the listing market in response to pent-up financing needs of more than 700 applicants. It is now grappling with a flood of overpriced share offerings, with nearly 50 companies floating at steep prices, worsening an already weak market.

Shaanxi Coal, which originally planned to raise about 17 billion yuan, cut its fundraising size by more than 70 per cent to four billion yuan.

According to data provider Wind Information, the companies that have joined the listing rush have set prices at an average price-earnings multiple of 29, compared with an average 10.6 on the Shanghai exchange.

Shaanxi Coal has said its net profit for last year could have fallen up to 45 per cent, but retail investors were undeterred.

CSRC chairman Xiao Gang said on Monday the regulator would deepen market-based reforms to protect investors' interests.