Lack of Malaysian institutional interest in China IPOs

PETALING JAYA: The string of China-based companies seeking a listing on Bursa Malaysia are finding it difficult to interest local institutions to take up placements of their shares, sources said.

The difficulty in securing these investors in turn is the main reason for the delay in the listing of these China companies on Bursa.

Malaysian investment banks are working on at least 10 initial public offerings (IPOs) of China companies keen to get listed here.

“While the placement agents at investment banks are working overtime to find interested funds, it is turning out to be difficult to get commitments from the institutions,” said an investment banker.

This could likely lead to one or two of the planned China IPOs on Bursa to pull out, said another party familiar with the situation.

The lack of interest among local funds comes as no surprise, considering the funds that did take up shares in the three China listings on Bursa since last year are sitting on a total paper loss of close to RM100mil.

This is based on the total institutional offering of the three China IPOs, compared with the prices the stocks are trading at currently. For example, shoemaker Xingquan International Sports Holdings Ltd is now trading at RM1.15, compared with its institutional IPO price of RM1.80.

Its 2009 annual report shows that a number of local institutions have emerged in the list of the company’s 30 largest shareholders. The funds include Lembaga Tabung Haji, Kumpulan Wang Persaraan (KWAP), CIMB’s Small Cap Fund and Mayban Life Assurance. These funds are believed to have participated in the IPO share placement of Xingquan last July. (See table)

However, it is interesting to note that Lembaga Tabung Haji had early this year, substantially increased its shareholding in Xingquan to around 5.75% from only 1% at the point of its IPO.

However, industry insiders said some of the China companies seeking a listing here were trying to convince institutional investors that they were in a very different category of companies from the three listed shoemakers.

A party familiar with the impending listing of Sozo Global Ltd, one of the Chinese companies approved to list on Bursa, said its promoters were focusing on the fact that Khazanah Nasional had been a pre-IPO investor and secondly, that Sozo planned to build a global halal hub in Malaysia from its listing proceeds.

“That Khazanah Nasional is an investor in Sozo should give investors a certain comfort level,” the source pointed out.

But fund managers like Choong Khuat Hock of Kumpulan Sentiasa Cemerlang remain uninterested in the China IPOs here.

“Considering the series of failures of China companies listed in Singapore over the last two years, I remain sceptical of China companies seeking a listing here,” he said. “I would be more comfortable with investing directly in shares listed in Hong Kong. Or even in shares of leading companies in regional markets such as Thailand and Indonesia.” For latest Bursa Malaysia indices, charts and other information click here

For latest Bursa Malaysia indices, charts and other information click here

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