TWO B-share companies have rejected market suggestions that their prospects will be affected by the listing of the nine state firms in Hongkong. However, officials of China First Pencil and Shanghai Outer Gaoqiao Free Trade Zone Development (Gaoqiao) said the listing plan had partly contributed to the doldrums in the mainland's B-share market. First Pencil is already listed in Shanghai while Gaoqiao is expected to list on the Shanghai exchange by July 26, following a public offering of B shares in Hongkong next week. The officials' remarks followed speculation that the float of Tsingtao Brewery, the first mainland firm to list directly in the territory, will further dampen the B-share market. Concerns have been raised that investors would switch out of the stagnant B-share market to focus on the nine state-owned companies. This is based on the belief that investors in the B shares are basically those who would invest in the nine companies selected by the State Council to list in Hongkong. Shanghai Haitong Securities deputy general manager Ma Yue said in Hongkong yesterday the nine companies had an advantage over B-share firms in Shenzhen and Shanghai. He cited as an example the better trading environment of the Hongkong exchange. First Pencil general manager Hu Shugang said the firm's developments would not be affected by reduced interest from B-share investors. He made the remarks while announcing an investment plan of 88.87 million yuan (about HK$120.15 million at the official rate) for this year. The plan includes the setting up of pencil manufacturing plants, the purchase of facilities and diversification into other business. First Pencil is the largest pencil manufacturer in China, with an annual output of 90 million yuan. It also earned US$6.6 million from exports. Mr Hu said First Pencil had a market share of about 14 per cent in terms of output capacity in the country of five billion pencils a year. This compared with the world's output of 10.5 billion a year. Mr Hu said the company would press on with its rights issue despite the sluggish stock market. The authorities have so far only approved rights issues of Shanghai Vacuum Electron Devices and Shanghai Dazhong Taxi. With the current market doldrums, they have withheld permission for other similar issues. Gaoqiao's adviser to general manager Rodger Zhuang agreed that the current B-share market was unfavourable for it to seek a listing. But he believed the market would improve. ''Although most investors in B-share companies look at the overall market when deciding to buy B shares, the development and potential of each company is the key factor in deciding whether they'll make or lose,'' he said. Gaoqiao is the first company to offer B shares in Hongkong. Mr Zhuang said the Hongkong launch was to facilitate the offering and trading of B shares, as investors were mainly from the territory. The company is offering 42.5 million B shares at $2.95 each. It is also placing 42.5 million B shares at 38 US cents each. Shanghai Shenyin Securities is the lead underwriter while Wardley Corporate Finance is the international arranger.