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September 22, 2009

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Metallurgical Corp has strong debut but below IPO average

METALLURGICAL Corp of China, in the world's second-largest IPO this year, surged 28 percent on its first trading day in Shanghai yesterday.

Though the first-day profit would be the envy of most companies in the world, it was less than half the average gain of recent China listings.

At the opening, Metallurgical Corp, an engineering and construction company whose projects include the Beijing Olympics "Bird's Nest" stadium, shot up 35 percent from its 5.43 yuan offer price to 7.33 yuan. It hit an intraday high of 7.5 yuan before trailing off in afternoon trading.

The shares closed at 6.94 yuan.

"The gain was in line with expectations and reflected relatively weak market sentiment," Huatai Securities analyst Chen Huiqin said. "An influx of new shares has weighed on the market, so we are no longer seeing the strong debuts of recent years, which were driven by abundant liquidity and a shortage of stock."

The Shanghai Composite Index edged up 0.15 percent yesterday after tumbling more than 3 percent last Friday.

Twenty-two other companies have listed on mainland stock markets after regulators lifted a 10-month suspension on IPOs to shore up slumping markets. All the IPOs have been oversubscribed and together have averaged 68 percent first-day gains.

China State Construction Engineering Corp, the nation's top home builder, rose 56 percent in its trading debut on July 29. Two days earlier, Sichuan Expressway Co, a smaller-cap stock, tripled on its first-trading day.

Metallurgical Corp raised a combined US$5.13 billion in both Shanghai and Hong Kong markets, ranking it second to China State Construction's US$7.34 billion Shanghai IPO earlier this year.

The Hong Kong shares will start trading on Thursday.

Some analysts said they are skeptical about Metallurgical Corp's long-term earnings prospects because one of the company's main businesses relies on assisting steel companies to build factories. That sector is now suffering from overcapacity in China.

Metallurgical Corp President Shen Heting dismissed those concerns, saying that his company anticipates continued rapid growth.

The company's businesses also include construction of mines outside China, including a nickel project in Papua New Guinea and a copper miner in Afghanistan.


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