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D-Day nears for mainland public floats

By Bi Xiaoning (China Daily)
Updated: 2009-06-19 10:04

An investor at a stock brokerage in Wuhan. [CFP]

The imminent resumption of new share issues in the mainland stock market has excited stockbrokers, financiers and investors, who anticipate increased business and investment opportunities through the fund raising activities.

But such enthusiasm is restrained by the widely held concern that opening the floodgates can trigger a rush for funds that could suck out market liquidity and short-circuit the slow recovery from the 2008 crash.

Since early this week, the market has been rife with talks of the return of initial public offerings, or IPOs. There have also been many unconfirmed reports that several medium-sized enterprises have obtained IPO approvals and that the first prospectus will be distributed to potential investors today.

"It's not very meaningful to guess IPOs will be resumed today or tomorrow," said Li Daxiao, director with Research Institution of Yingda Securities. But some things are certain, he said. And they are: the IPO market can be resumed within one week and the small and mid-cap stocks will be the first to tap funds from the market, he said.

Shenzhen Stock Exchange has tested its off-line electronic new shares issuance system and on-line system in the past 10 days, while Shanghai Stock Exchange has not conducted any test recently.

Industry analysts said it would be prudent to issue small and mid-cap shares first, as the regulator can gauge the market rally and ensure that the market is not swamped by an IPO deluge.

The China Securities Jounal said yesterday on its website that Guilin Sanjin Pharmaceutical Co has received a regulatory notice allowing it to go public and issue yuan-denominated A shares. It is likely to be the first IPO after the China Securities Regulatory Commission (CSRC) issued new rules earlier this month.

Earlier media reports also said Zhejiang Wanma Group Cable Co and Shenzhen Salubris Pharmaceuticals Co have got the green light to list on SMEs board in Shenzhen.

Related readings:  Stock market shines as most global peers lag  IPO lure draws elusive investors back to bourses  Chinese shares decline 1.91% on worry about IPO restart  IPO norms favor small investors

According to their pre-release prospectus, the funds raised by the three companies are all moderate. Wanma is to sell 50 million A shares, while Sanjin and Salubris will issue up to 46 million shares and 28.5 million shares respectively.

Thirty-three companies have passed hearings at the CSRC's listing panel, the penultimate step in the process of getting stock sale approvals. Among these, China State Construction Engineering Corp (CSCEC), Everbright Securities Co, Sichuan Expressway Co, China Merchants Securities Co and Guangzhou Zhujiang Brewery Co are planning to list on the main board.

According to financial data provider Wind Info, the 33 companies can sell about 11.42 billion of A shares in total. The largest deal is the country's biggest homebuilder CSCEC, which would issue 12 billion A shares and raise about 40 billion yuan, its prospectus said. Once listed, it would be the fifth largest IPO in the mainland till now.

China International Capital Corp (CICC) estimated that the 33 companies could collect a combined 72.2 billion yuan while the five companies that are planning to list on the main board may raise over 1 billion yuan each.

According to CICC, CSCEC can raise up to 42 billion yuan, while Everbright Securities and China Merchants Securities can raise about 10 billion yuan and 8 billion yuan respectively. The capital raised can be 2 billion yuan for Sichuan Expressway Co and 1 billion yuan for Guangzhou Zhujiang Brewery Co. So, the capital raised by the five big companies can occupy over 87.26 percent of the total funds raised by the 33 companies.

Last Friday, market rumors said CSCEC was likely to be the first company to go public. On that day, the country's benchmark Shanghai Composite Index declined about 1.91 percent on worries about the resumption of IPOs.

"Large companies are not likely to list immediately after the resumption of IPOs due to concerns that a massive equity supply could stifle the market rally," Li said.

Sources close to the CSRC said the regulators are very cautious in selecting the first batch of listed companies and would take into consideration the companies' size, the time of passing hearings at the CSRC's listing panel and the brokers' experience.

A total of 21 brokerage firms are the main underwriters of the 33 to-be listed companies. CICC, Orient Securities, China Galaxy Securities, Guangzhou Securities, Goldman Sachs Gaohua Securities Co and UBS Securities will undertake the new share issuance of five main board listed companies.

According to the research report of CICC, the underwriting charge rate for large-scale IPO projects can be about 2 percent. Based on this assumption, CICC can gain about 840 million yuan of revenue from underwriting the new shares of CSCEC.

PingAn Securities gained the most projects of the total 28 companies listed on the SMEs board. According to CICC, PingAn Securities underwrote five projects and the total fees can be over 52 million yuan. China Merchants Securities followed with four projects, yet its total underwriting revenue can be over 68 million yuan.

Industry heavyweights CITIC Securities and Guotai Junan Securities Co missed the bus in the list of 21 brokers. Experts said the two companies focus on large-scale projects and refinancing deals, whereas this round of new share issuance is mainly dominated by small and middle-sized projects.

The CSRC stopped allowing public offerings in September after the Shanghai Composite Index fell almost 60 percent in the first nine months of last year.