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Road firm swamped on trade debut

SHARES in Sichuan Expressway Co more than tripled on their trading debut yesterday in Shanghai's first initial public offering since last September.

The toll-road operator's price jumped 202.78 percent to close at 10.90 yuan (US$1.59) after gaining as much as 323.61 percent earlier.

About 74,000 stock accounts bought shares in Sichuan Expressway yesterday and "99.9 percent of them" were individual accounts, the Shanghai Stock Exchange said in a statement after the close of trade.

"Irrational behavior by individual investors pushed up the stock price significantly," the stock exchange said. "We've recently seen a trend of speculation, with the index going up, and we want to warn investors of risks in chasing IPO shares on their trading debuts."

Sichuan Expressway's original plan was to raise 1.8 billion yuan by issuing 500 million new shares at 3.60 yuan apiece in a bid to buy Sichuan Chengle Expressway Co from its parent.

"Investors have high anticipations for the company's growth prospects because it was the first major IPO on the mainland since last September and the company promoted itself well," said Xu Jie, an analyst at Orient Securities Co. "A reasonable price for the stock would be below 7 yuan."

The Hong Kong-listed shares of the firm rose 5.57 percent to close at HK$3.60 (46 US cents) yesterday.


Sichuan Expressway was 361 times oversubscribed in offline sales to institutional investors and 385 times oversubscribed in online subscriptions to retail and institutional investors.

"The surge was partly because of liquidity in the market, especially as the 12 billion yuan fund subscribed for China State Construction has just been unfrozen," said Lin Feng, an analyst at Aerospace Securities Co.

"Many stocks have gained too much during this round of increases, so investors favored the major IPO.

"But they must remain cautious as shares which increase on trading debut usually slump on the next trading session."

The surge triggered two suspensions by Shanghai Stock Exchange as China Securities Regulatory Commission ruled that a company's shares must be suspended for 30 minutes on debut day if the price rises or falls by more than 20 percent after opening.

Another 30-minute suspension is enforced when a price fluctuates by more than 50 percent in either direction.

The rules are to curb speculation and protect investors.

The securities commission resumed IPOs this month.

Shares in Guilin Sanjin Pharmaceutical Co, Zhejiang Wanma Cable Co and Your-Mart Co all jumped on their Shenzhen debuts, but have since fallen below their first-day closing prices.

China State Construction Engineering Corp will begin trading tomorrow in a bid to raise as much as 50 billion yuan in the country's biggest IPO in two years.


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