China boost to landmark IPO

03/05/2009 | Steve Garton

China’s state-driven efforts to stimulate its economy won a vote of confidence from the market this week with the pricing of the world’s biggest initial public offering of the year.

China’s state-driven efforts to stimulate its economy won a vote of confidence from the market this week with the pricing of the world’s biggest initial public offering of the year.
Zhongwang Holdings, a Chinese aluminium company, priced its IPO on Thursday at HK$ 7 a share, raising $1.3 billion.
The deal signals that demand for Chinese stocks remains high despite a strong rally in share prices in recent weeks. It is the biggest new listing on any of the world’s exchanges since July last year.
The shares, however, priced towards the low end of the targeted range of HK$6.80-HK$7.80. Markets had weakened at the start of the week on fears over the spread of swine flu and renewed concerns over the health of US banks.
Joint bookrunners Citic Securities, JPMorgan and UBS marketed Zhongwang as a play on China’s rail sector, where the government is investing billions of renminbi to upgrade infrastructure and buy rolling stock.
Those efforts have been underway for the last two years but the government is accelerating its investment programme as part of the Rmb4 trillion ($582 billion) fiscal stimulus announced at the end of 2008.
Zhongwang makes aluminium components that are used in railcars, and lists the Chinese Ministry of Railways among its many customers. That partly explains the company’s appeal to equity investors.
Fund managers placed orders worth well over twice the 1.4 billion shares on offer, according to bankers involved in the deal. Individual buyers were less enthusiastic, taking up just 70% of the shares offered to retail investors.
Tim Bassett, a fund manager at Hume Capital in London, said: “Logically Asian markets should never have fallen as much as they did. There is an opportunity to bounce back, but not to the madness of the last five years.
“China doesn’t have a lot of the problems that Western markets have in terms of over-leveraging, but it is massively dependent on exports.”
Companies in the Asia Pacific region have raised a total of just $660 million from 38 IPOs since the start of 2009, down 93% from the same period last year.
Mark Williams, head of equity capital markets for Asia at UBS in Hong Kong, said: “The equity capital markets have clearly been recovering this year. Most of the business has come from rights issues and follow-on offerings, mainly in the banking sector.
“That business has been spread around the region, but we expect IPOs still to be China-focused, given the interest in Chinese infrastructure and companies linked to the stimulus plan.”

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