Pricing seen as cure for new-listing fever

PRICING is the key to a resolution of the territory's Sino-Hongkong listing frenzy, says Credit Lyonnais Securities.

Managing director Gary Coull said the problems associated with the heavy subscription of Sino-Hongkong listings would end if the merchant banks sponsoring the offer increased the price-earnings multiples of the flotations.

Last week, Denway Investment was 658 times oversubscribed, with some $240 billion of investor money being tied up.

Last year China Travel International Investment was oversubscribed 411 times, with $150 billion of investor money tied up.

A Government-led investigation into the phenomenon was triggered following last week's Denway subscription.

Mr Coull said: ''These levels of subscription are not in the interests of the clients.

''Listing these companies on PEs of six and eight times is being followed for historic reasons and does not take into account changing circumstances.'' Pricing these issues on higher PEs, whatever method of equity distribution was used at the end of the day, would go some way to taking the heat out of these Sino-Hongkong listings, he said.

''We have to look at the pricing and examine what the market is prepared to take,'' said Mr Coull.

The change in circumstances meant that the old pricing regime for new listings was out of date.

''We have low interest rates and high inflation, and that leaves us with negative interest rates,'' Ms Coull said.

''In these circumstance investors are going to be quick to take an opportunity when they see one, like Denway for example.'' Many of these companies would end up on P-Es of 12 to 18 times after their initial period of listing, with a rapid rise in share prices.

That suggested the current pricing of Sino-Hongkong listings was all wrong, said Mr Coull.

Peregrine Capital, the merchant bank behind the Denway listings, has proposed that sale by tender offer of new listing shares be considered as an alternative to the current public offer method.