SouthGobi posts 11pc debut loss on market jitters

Nick Westra

SouthGobi Energy Resources suffered a double-digit loss yesterday, becoming the second multibillion-dollar initial public offering in three days to flounder on its trading debut as investors tighten their purse strings.

The Vancouver-based coal miner dived as much as 16.2 per cent in the morning before settling down 11.1 per cent at HK$112. It was the sixth-worst performing stock in the market.

The slide comes just after giant Russian aluminium producer Rusal dropped 10.6 per cent on its debut on Wednesday.

'Overall market sentiment is not very good so the performance of the IPOs in the first trading days [has been] very bad,' said Patrick Yiu Ho-yin, the managing director of CASH Asset Management. 'And [investors] now have more choices to buy cheaper valuation stocks, so it is not necessary to buy IPOs.'

Financial markets have been spooked by sudden monetary tightening on the mainland and aggressive talk from United States President Barack Obama about restricting revenue streams for major banks.

New stocks have been hit especially hard because their listing prices were set before the correction gained momentum.

'When they first did their road shows, the market was very bullish and there was lots of hot money,' said Andrew To, a sales director at Taifook Securities. 'But now the valuations look a little pricey.'

Rusal and SouthGobi have set a dismal tone for the IPO market as the only two new listings so far this year. They still managed to raise a combined total of almost HK$20 billion.

SouthGobi said it raised a net HK$2.87 billion excluding an over-allotment and will use most of the proceeds for expansion. It has earmarked funds for raising the capacity of its Mongolian coal mine, integrating it with regional infrastructure, and building secondary facilities.

The coal miner has been in the red, however. It reported losses of US$69.6 million in 2008 and US$41.7 million in the first nine months of last year, according to its prospectus.

'Those new IPOs don't have a good track record,' To said. 'And there are [already] so many [listed] property, raw material and coal companies.'

Rusal pledged to pump proceeds from its flotation to reduce its US$14.9 billion in debt. It has declined in three straight sessions since listing this week and is down 12.2 per cent over that stretch, at HK$9.48.

The Securities and Futures Commission restricted the Russian company's share sale to professional investors because the firm did not meet the stock exchange's main-board profit requirements.

Its chief executive, Oleg Deripaska, attributed the debut performance to a tough stretch in global financial markets.

The Hang Seng Index closed the book yesterday on its worst month since October 2008. The index fell 8 per cent to 20,121.99 points, snapping four consecutive months of gains.

Bad start

The miner is the second big new listing this year to begin trading poorly

The Hang Seng Index recorded its worst month since October 2008 with a drop in January of: 8%