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February 27, 2010

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Huatai's weak debut falls short of outlook

SHARES in Huatai Securities Co grew 5.3 percent yesterday on its Shanghai debut, falling short of analyst expectations of the largest initial public offering on the Chinese mainland so far this year.

The Jiangsu-based brokerage climbed to 21.06 yuan (US$3.08) per share yesterday, while the benchmark Shanghai Composite Index dipped 0.28 percent to close at 3,051.94.

The small rise bucked some analysts' expectations. Essence Securities estimated Huatai shares would rise to between 23.10 and 25.30 yuan each on their trading debut, and Xiangcai Securities estimated its share price would be above 25.21 yuan.

Huatai set its offer price at the low end of an indicated range between 20 and 22 yuan to raise 15.7 billion yuan. Previously, companies usually set their offer prices at the top of an indicative range to raise the maximum amount of capital because investor enthusiasm almost guaranteed strong gains for new stocks on their trading debut.

The mid-sized brokerage sold 784.56 million yuan-denominated shares, or 14 percent of its enlarged capital. It will use the proceeds to increase working capital and to expand financial derivative services.

The weak debut performance reflected investors' lackluster response toward new listings after other companies, such as China XD Electric and China Erzhong Group Deyang Heavy Industries Co, also fell below their offer prices on debut.

But Northeast Securities Co predicts that Huatai will benefit from the launch of margin trading and stock index futures.

"A reasonable price range for Huatai should be between 20 and 23 yuan each," Northeast Securities said.


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