Offshore underwriting seen continuing

OVERSEAS underwriters will continue to take on initial public offering business for mainland companies this year despite the higher risks in a sluggish market, says Smith New Court director Norman Li.

However, Mr Li said competition would still be confined to major underwriters with strong brokerages to handle the substantial new issues.

As institutional investors tended to be more demanding about the quality of the new mainland stocks, he said underwriters too had to carefully weigh the risk.

''When mainland stocks were first available in the international market in the first half of 1992, investors seldom asked details about them, but now they are much more selective,'' Mr Li said.

Despite the downturn in mainland stock markets in the third and fourth quarters, no new issues were under-subscribed, he said.

Mr Li said the mainland authorities were also becoming more realistic about the pricing of new issues.

For instance, price-earnings multiples for new issues in Shanghai had been reduced from a high average of 18 times to a more acceptable level of 10 to 12 times.

He said the Shanghai market, which was less export-oriented and better supported by domestic economic development, had higher long-term growth potential than Shenzhen.

The much higher underwriting fees based on the conglomerate nature of the Shanghai stocks offered additional appeal, he said.

Smith New Court was also looking for more corporate advisory jobs in Shanghai, he said.

''It appears that the mainland companies are more willing to hire consultant firms for pre-listing advice or other corporate restructuring proposals,'' Mr Li said.

Smith New Court was talking to Tsingtao Beer and Guangzhou Shipyard about sharing in underwriting for mainland enterprises wanting to list in Hongkong.

On the secondary market, Mr Li expects foreign dealers and brokers to be granted seats on the Shanghai stock exchange next year and allowed to directly trade stocks for overseas clients.