ORIENTAL Metals (Holdings) Co and Harbin Power Equipment Co (HPEC) are the latest victims of the stock market crash, with Oriental Metals' initial public offering a flop and the Hong Kong issue of HPEC barely exceeding full subscription. Only 60 per cent of Oriental Metals' shares on sale were subscribed when the offer closed on Wednesday. The failure will leave its underwriting syndicate, led by Peregrine Capital and CEF Capital, a burden of 54.58 million shares worth about $81.87 million. Backed by China National Nonferrous Metals Industry Corp, Oriental Metals issued 133.9 million shares at $1.50 each to raise about $201 million. The company said it received only 65 valid applications for 64 per cent of the 86.24 million shares set aside for public subscription. In addition, it received 156 valid applications for about 32 per cent of the 34.27 million shares earmarked for a preferential subscription arrangement by the minority shareholders of its Hong Kong-listed parent ONFEM Holdings. Only the portion of 13.39 million shares for employees was fully met. Oriental Metals said the unsubscribed shares would be taken up by the underwriters in the proportion stated in the agreement signed on December 1. The company's shares were sold at 7.2 times this year's earnings on a pro forma fully-diluted basis. But the low multiple and its Chinese connections did not save it from misfortune, as jittery investors scrambled to switch out of equities for cash and bonds amid fears of interest rate rise. HPEC said its Hong Kong share offering was 1.4 times subscribed, with 111 valid applications for 100.99 million shares. The mainland power equipment maker offered 72 million shares for sale at $2.58 a share. It put a further 363 million shares for international placement, with an over-allotment option to issue a further 45 million shares. The shares were pitched at 14.49 times this year's earnings on a pro forma fully-diluted basis, before the exercise of the over-allotment option, and about 12 times prospective next year's profits. Although HPEC is in China's most coveted power sector, bearish market sentiment and the company's aggressive pricing strategy has deterred some investors from putting money into the H-share counter. 'The pricing is a bit aggressive under current market sentiment,' said Jason Cheung, assistant vice-president of Merrill Lynch Asia. But he said HPEC deserved a slight premium in the secondary market to its small rival Dongfang Electrical Machinery because it was a more fully-integrated enterprise. The company also would have better earnings outlook over the next two years, with its expertise in thermal power generator production. The shares of Oriental Metals will begin trading on Thursday, and those of HPEC on Friday.
