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IPO debut companies suspended from trade

THE first two companies to go public on the Chinese mainland since September were halted from trading today after surging higher than the debut day limits.

Guilin Sanjin Pharmaceutical Co, China's largest herbal lozenge-maker, rose 81.87 percent to 36.01 yuan and Zhejiang Wanma Cable Co jumped 125.48 percent to 25.93 yuan on the Shenzhen Stock Exchange.

The increase exceeded the trading limits set by the Shenzhen bourse, which rules that a company's shares will be suspended for 30 minutes on its debut day if the price rises or falls by more than 20 percent after opening. Another 30-minute suspension will be enforced if the share price fluctuates by more than 50 percent in either direction.

The move is to curb speculation and protect investors. Chinese investors typically favor initial public offerings as prices almost always surge on the first day of trading.

"As the first batch of companies to launch IPOs after a 10-month suspension, Wanma was sure to receive a warm welcome from investors. But the increase is higher than our expectations," said Shi Haisheng, an analyst at Zheshang Securities.

"A reasonable price to earning ratio for Wanma would be between 23 and 28, but the ratio has exceeded 50 now, and we expect its share price will fluctuate sharply in a short term," Shi said.

"I don't think the securities regulator's efforts in preventing excessive first-day price swings took effect," he said.

China Securities Regulatory Commission last month introduced a new IPO pricing system, under which an investor can apply to buy only up to 0.1 percent of all the shares available in an IPO, to narrow the difference between the IPO price and the trading price at a stock's debut.


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