CSRC’s hand lifts shares of IPOs
Print Edition
THE Chinese regulator’s guidance on IPOs caused shares of 10 new listings in the last two weeks to double or triple within one week of their debut.
The China Securities Regulatory Commission ended a 14-month initial public offering freeze in January, promising market-based reforms to revive one of the world’s worst-performing stock markets.
Yet the new listings again were subject to rampant speculation by investors who prefer taking a quick profit rather than investing for the long term.
One of the newly listed firms, Shandong Longda Meat Foodstuff Co Ltd, was suspended from trading on Monday after its shares rose an accumulated 20 percent during three straight trading days. It resumed trading yesterday and hit the upper limit once again in early morning trade.
Analysts blamed the run of gains on the window guidance by the CSRC.
Prior to their IPOs, the CSRC urged the 10 companies to refrain from over-pricing, over-raising capital, and selling shares currently held by existing stakeholders.
Such guidance, seen by stock underwriters and institutional investors as de-facto interference, suppressed the offering prices of these stocks.
Most of the new listings opened at a price no more than 20 times their 2013 earnings, which is below the average price-to-earning ratios in their respective sectors, suggesting cheaper valuation than their peers.
Besides cheap valuation, institutional investors argued such interference disrupted a relatively market-based pricing process during off-line share allocation. These investors pitch what they think a soon-to-be public firm is worth and the offering price is based on these quotes.
With this administrative limit in place, institutional investors who have participated in these off-line allocations said figuring out the price has become simple math: divide the amount of capital a company wants to raise by the number of shares to be issued and you’ll get the offering price.
The CSRC also allocated more shares to be subscribed by retail investors this time. This has led to institutional investors scrambling for 10 percent of the shares some of the companies have put up for sale, while the remaining 90 percent are chased by retail investors.
Previously, some institutional investors would borrow to buy new stocks, but in the latest round of IPOs, some of these investors were allocated as few as 2,000 shares, which squeezed their chance to profit through leverage.
However, retail investors hold a different view, saying cheap valuation makes these shares more affordable and gives them greater potential to rise once they are traded on the open market.
“This is the first time I have ever snatched up shares in the primary market,” said a man surnamed Wang in Shanghai. He was referring to the 1,000 shares he has successfully subscribed for each of two new listings.
A veteran investor since the early 1990s, Wang has been through the thick and thin of China’s stock market.
One of his picks, Guangdong Ellington Electronics Technology Co Ltd, has seen its share price more than double since its debut on the Shanghai stock exchange on July 1. His other pick, Zhejiang Shapuaisi Pharmaceutical Co Ltd, is also set to double its offering price.
(Xinhua)
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