Investors tepid on Qingdao port IPO after metals stockpile investigation
Qingdao Port raises HK$2.49 billion but retail investors steer clear after allegations of inflated metals stockpiles sparked official investigation
Retail investors left Qingdao Port International high and dry as most of them decided to steer clear of its initial public offering amid investigations into allegations that firms have inflated metals stockpiles at the port to generate more bank financing.
In a statement to the stock exchange yesterday, Qingdao Port said it received applications from just 824 retail investors for 11.9 million shares, accounting for about 15 per cent of the entire retail tranche.
The poor response from retail investors came even after the state-owned company, sensing tepid market conditions, cut its original offering size by more than half.
The company, based in the coastal city of Qingdao in Shandong province, raised HK$2.49 billion after six cornerstone investors bought US$167.7 million worth of shares, nearly half of the entire deal.
The economic slowdown and reports of a probe into trade financing practices of some companies using Qingdao Port warehouses dented investor appetite for the stock, said Eugene Law, a director at brokerage house Galaxy International.
"There are clearly risks as it appears the firms using the port's warehouses have been relying on commodity-backed funding," Law said.
The commodities stored in the port have in the past been leveraged to raise capital from banks. But with the demand for commodities flagging as China eases its strategy of boosting the economy through infrastructure investment, commodities prices have taken a hit. As a result, lenders are stuck with loans to companies that used metals as collateral as the value of the underlying assets have shrunk.
The amount of transactions using commodities as collateral is about US$160 billion, or 31 per cent of China's total short-term foreign exchange loans, a Goldman Sachs report said in March.
Qingdao Port said in its listing document: "Financial institutions often contract us to store and monitor goods used as collateral in financing services they provide to our customers, such as loans collateralised with warehouse receipts."
Not only has the collateral lost value, now there are allegations that warehouse receipts may have been inflated to raise more funds. The authorities have blocked some metals shipments from Qingdao as they investigate the allegedly fraudulent use of warehouse receipts, according to the media.
Standard Chartered had suspended new metal financing to some customers in China, sources said, as banks and trading houses reviewed their exposure after a probe into trade financing at the port. A Standard Chartered spokeswoman said the bank was reviewing financing to a small number of clients.
Additional reporting by Reuters