Citic Heavy Industries has become the latest victim of the A-share market's seemingly unending bear run, which has forced it to nearly halve its original IPO target of six billion yuan (HK$7.4 billion).
The machinery maker floated 685 million shares at 4.67 yuan apiece, and its 315 million shares offered to the general public were 20 times oversubscribed. The remaining 370 million shares slated for institutional investors also flew off the shelf.
The offering price translated into 16.2 times its 2011 earnings, compared with an average price-earnings multiple of about 20 for its peers traded on the mainland exchanges.
'It had to bow to the pressure from the regulator and investors,' said a West China Securities trader. 'The weak market is now making IPOs extremely difficult.'
The company, previously known as Luoyang Mining Machinery, planned to raise six billion yuan to fund its expansion.
It cut the target to 4.13 billion yuan in its prospectus before further scaling down the offering size to 3.2 billion yuan after price consultations with institutional investors.
Analysts said the lower offering price made the shares an easy sale as retail investors believed they would rise after debut. Citic Heavy's listing date has yet to be determined.
The IPO comes at a time when the China Securities Regulatory Commission (CSRC) has expressed determination to curb new share offerings after the key Shanghai index finished as one of the world's worst-performing indicators in 2010-11.
CSRC chairman Guo Shuqing has made underwriters and IPO issuers reduce offering prices, in an apparent effort to avoid a huge liquidity drain from existing holdings.
The 21st Century Business Herald, one of the country's leading financial newspapers, reported that Citic Heavy would need an additional four billion yuan to fund five projects it planned to set up, given the lower-than-expected capital boost from the Shanghai market.
The Citic Heavy IPO would trail the five billion yuan share sale by China Communications Construction in February to be the mainland's second-largest new offering so far this year. The mainland's IPO market showed signs of ebbing in the first half of this year, with companies including Citic Heavy raising a combined 72 billion yuan - down 55 per cent from the same period a year ago.
The economic slowdown has also dented buying interest in machinery makers. Henan-based Citic Heavy, a subsidiary of state-controlled conglomerate Citic Ltd, is the country's fourth-largest heavy machinery maker with a 3.97 per cent share of the domestic market.
Its major rivals include China First Heavy Industries and Taiyuan Heavy Machinery Group.
Zhong De Securities, a joint venture between Deutsche Bank and Shanxi Securities, and Citic Securities are the managers of Citic Heavy's A-share offering.
Citic Heavy has benefited from the country's stimulus packages in recent years as it supplied heavy machinery equipment to industrial giants such as Shenhua Group, China's largest coal producer, and BHP Billiton.
It posted a net profit of 828 million yuan in 2011, up 27 per cent from the previous year.
Haitong Securities said in a report that potential stimulus policies by the central government to combat the slowdown could further benefit machinery makers. Haitong predicted Citic Heavy's shares would trade at 5.44 yuan after listing, 16.5 per cent higher than the offering price.
'Investors should be cautious about the risks of buying into the company,' Dongguan Securities analyst Mo Jingcheng said in a report. 'The fluctuations in prices of raw materials and fiercer competition could affect the company's performances.'
On the mainland, the heavy machinery sector is crowded, with nearly 5,000 players.
Citic Heavy slated 370 million shares, or 54.7 per cent of its IPO volume, for institutional investors.
Last month, the CSRC required IPO issuers to earmark at least 50 per cent of the total for so-called offline subscription, also known as the price-setting process.
The regulator raised the percentage from the previous 20 per cent as it believed a bigger supply of shares could help curb prices during the consultation process.
Fund-raising in the mainland's IPO market was down this much in the first half from a year ago, with a total of 72 billion yuan raised