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SCMP Reporter

New issues are as much as 100 times oversubscribed as investors hope for big gains in the first few days of trading

Performance-hungry fund managers are driving up demand for recent new offerings, with some issues as much as 100 times oversubscribed despite the dismal debut performance of Beijing Capital Land last week.

Recent initial public offerings from Lianhua Supermarket Holdings and Vedan International (Holdings) have received overwhelming responses from retail and institutional investors alike.

Lianhua, the largest supermarket chain in Shanghai, was 80 times subscribed; Vedan, a Vietnamese-based maker of monosodium glutamate, was 100 times subscribed.

Louis Wong Wai-kit, the head of research at Phillip Securities, said the oversubscription levels indicated new offerings were in demand.

During the height of the Sars outbreak, many fund managers were overweight in cash.

But as  expectations grew for a second-half pick-up in the United States, fund managers began changing their defensive approach, adopting a riskier strategy that offered the chance for higher returns and an opportunity to outperform the broader market.

'There is usually about a 10 to 30 per cent gain in the first few days of trading,' Mr Wong said.

Still, he noted that gains were not guaranteed and that pricing of the issue played a factor. He cited the example of Beijing Capital, which was about 10 times oversubscribed but fell below its offer price after its debut.

Mr Wong, who has applied for access to the Vedan offer, said the  stock might gain between 5 and 10 per cent when it debuts  on Friday.

Vedan was priced at 89 cents a share last week, at the low end of its pricing range, Mr Wong said. 'The company's commitment to a high dividend payout of 40 per cent to 60 per cent sounds appealing.'

Fund managers conceded there was a lot of liquidity chasing IPOs but said they were not buying irrationally.

'Pricing and the business model of the new issues are the key [factors],' one fund manager said.

Of the recent issues, the fund manager was upbeat on Lianhua, brushing off analyst worries that the counter would follow in the footsteps of Beijing Capital, which was shunned by investors due to its aggressive pricing.

'There are rumours that the oversubscription [for Lianhua] was driven by hot money from China,' the fund manager said.

She said the pricing might seem expensive compared with other new issues.

'But it is still much cheaper [than its counterparts trading] in China,' the fund manager said.

Other than Lianhua and Vedan, three other new issues will come to market this week.

Computer solutions provider Innovis Holdings and snack maker Wah Yuen Holdings will debut tomorrow. Byford International, owner of the British men's underwear brand, will begin trading on Friday.

Appealing debuts

Lianhua Supermarket was 80 times subscribed, while monosodium glutamate maker Vedan was 100 times subscribed

But gains are not guaranteed. Beijing Capital trades below its offer price despite being oversubscribed

Three other new issues will come on the market this week



Fund managers fuel IPO demand