SHANGHAI: Shipping giant China COSCO Holdings Co attracted over US$200bil of funds to its US$2bil initial public offer of shares in Shanghai, a record amount of subscriptions to a domestic Chinese IPO.
The flagship company of China’s premier shipping group drew 1.629tril yuan (US$214bil) of subscriptions from retail and institutional investors, the company said yesterday.
That surpassed the previous record of 1.455tril yuan posted by Bank of Communications in a Shanghai IPO in April.
The oversubscription ratio of 106 times for China COSCO’s offer was one of the highest ever recorded for a Chinese company. China COSCO has said it expects to list in Shanghai by June 29.
Analysts said the IPO had proved so popular partly because it was the first big equity offer since April, and partly since it was priced at a big discount to the company’s Hong Kong-listed H shares.
But the huge demand also showed Chinese investors are continuing to pour into the stock market despite the government’s steps to cool it. The main index plunged as much as 21% after authorities hiked the stock trading tax in May, but has since bounced back near its record high.
Chinese authorities are encouraging a flood of top companies to list in Shanghai by the end of this year. Oil giant PetroChina said yesterday it planned a listing that could raise up to US$5.7bil, while industry sources say China Mobile aims to raise more than US$6bil.
Depending on exactly how the offers are timed, they could put unprecedented fund-raising pressure on China’s domestic stock market. But the demand for China COSCO’s IPO suggests the market may be able to absorb the new supply of shares comfortably.
“The supply will help slow the market’s rises but will not stop its long-term bull run, which is supported by China’s strong economy, rising corporate earnings and an increase of quality at the firms themselves,” said Zheng Weigang, senior analyst at Shanghai Securities.
China COSCO priced its offer at the top of an indicative range of 7.60 to 8.48 yuan per share, raising 15.1bil yuan by selling 1.784 billion A shares or 20 percent of its expanded share capital.
This left the shares, like most other domestic Chinese shares, valued far more expensively than similar stocks overseas, partly because of the company’s rapid growth and partly because Chinese investor demand for equity exceeds supply.
The offer price was 99 times China COSCO’s 2006 earnings based on Chinese accounting standards, excluding extraordinary items and adjusting for dilution from the offer. The global shipping and ports sector has a historic ratio of just 25 times.
But the Shanghai offer price was still at a 20% discount to the HK$10.88 last close of China COSCO’s H shares in Hong Kong – a large discount compared to previous Shanghai IPOs of Hong Kong-listed companies.
Since the A shares of many dual-listed firms in the transport sector trade at premiums of around 50% over their H shares, China COSCO’s A-share pricing appears to guarantee a big jump when the company lists in Shanghai.
Thirty per cent of shares in the offer went to strategic investors, 20% to institutions and 50% to retail investors after the retail portion of the offer was expanded because of the strong demand. – Reuters