China Southern Locomotive (中國南方機車), the country’s biggest train manufacturer, saw its shares peak in their trading debut yesterday at 83 percent above the initial public offering (IPO) price and then fall back as the broader market extended its losses.
By midday, the state-run company’s shares were at 3.68 yuan, down from the high of 4 yuan reached early in the day. The shares were down 4.7 percent from their opening price of 3.86 yuan but still about 77 percent above the IPO value.
China Southern Locomotive priced its IPO of 3 billion yuan-denominated shares at 2.18 yuan (US$0.32).
The debut did little to brighten sentiment on a market that has lost 55 percent of its value since the beginning of the year. The benchmark Shanghai Composite Index was down 3.1 percent midday yesterday at 2,373.56 in a decline led by refiners and other large capitalized shares.
“It’s not the best time to be putting IPOs on the market these days,” said Zhang Jincan, an analyst who focuses on the machinery industry, at Guotai Junan securities (國泰君安證券) in Beijing.
But given the strong growth planned for China’s railways in the coming years, the share’s price is in a “rational range,” he said, noting that efforts to curb inflation by keeping tight controls on construction investment were unlikely to adversely affect its business.
By the end of last year, China had spent less than a third of the 1.25 trillion yuan (US$187 billion) it had budgeted for railway expansion for 2006 to 2010, said Jing Ulrich, chairwoman of China equities for JPMorgan Chase & Co.
Together with a tandem listing on the Hong Kong Stock Exchange later this month, China Southern Locomotive’s IPO raised about US$1.5 billion — a far cry from the mega-listings of last year.
Research firm Dealogic has reported that this year Chinese markets, including Hong Kong’s, have seen new share listings plummet to a total of US$22 billion raised in 109 issues so far, down from US$45.1 billion worth of listings in the same period last year.
Meanwhile, share prices in both Shanghai and the smaller market in Shenzhen have languished — dogged by pessimism over the economy and earnings prospects for companies likely to see sales fall as demand for products declines in the US and other countries battling recession.
The pace of IPOs in China’s markets has slowed to a trickle. The China Southern Locomotive listing is the first in months and despite its relatively modest size the third largest this year.
The 6.54 billion yuan raised in the Shanghai segment of China Southern Locomotive is about 10 percent of the 66.8 billion yuan oil and PetroChina (中石油) netted in its Shanghai IPO last October — a record for a China exchange.
The two larger China IPOs so far this year, those of China Railway Construction Corp (中國鐵建) and China Coal Energy Co (中煤能源), raised US$5.7 billion — the second biggest worldwide so far this year — and US$3.5 billion respectively.
China’s markets were set up to raise money for state companies. But the protracted correction is causing some major players to defer domestic IPOs — among them China Mobile (中國移動), which late last year had been expected to raise as much as US$10 billion in a Shanghai share listing.
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