China Plans Parade of Big IPOs

China Plans Parade of Big IPOs
China Plans Parade of Big IPOs

By HELEN LUK
The Associated Press
Tuesday, June 14, 2005; 3:40 AM



HONG KONG -- China is making a splash in financial markets with the world's biggest initial public offering this year: On Wednesday, its largest coal producer, China Shenhua Energy Co., hopes to raise nearly $3 billion.

Need more signs of China's mammoth appetite for global capital?

In coming weeks, three more major Chinese companies plan IPOs on Hong Kong's stock market, where together they aim to raise another $5 billion.

Investor demand seems strong, particularly in Bank of Communications, China's fifth largest lender and the first bank to list outside the mainland. Some analysts expect its shares will be oversubscribed by 200 times when it comes to market on June 23.

"Bank of Communications will definitely be very hot. Its pricing is reasonable and demand is quite big," said Herbert Lau, head of research at Celestial Asia Securities Ltd.

The bank plans to raise $1.9 billion, and its initial share price is expected to be between HK$1.95 (25 cents) and HK$2.55 (30 cents) a share. In sheer size, that would surpass last year's biggest Chinese IPO, a $1.85 billion offering by Ping An Insurance (Group) Co.

But analysts also warn of risks in China's attempts to transform state-owned enterprises into competitive private companies.

China's IPOs are usually "politically driven," said Andy Xie, an economist at Morgan Stanley in Hong Kong.

The government is "using the stock market as an instrument to help these companies adapt to the market" _ and it remains to be seen how successful this experiment will be, he warned.

"The Chinese model is very different from what we've seen in other countries," Xie said. "The government is trying to create competitive companies, while usually other countries privatize these companies and leave them to entrepreneurs to improve."

Other Chinese companies seeking Hong Kong listings include China Minsheng Banking Corp., the mainland's most prominent private bank, and container shipping giant China Cosco Holdings.

There are two smaller Chinese stock markets in the mainland _ in Shanghai and Shenzhen _ but selling shares on Hong Kong's larger bourse allows Chinese companies to tap into a much wider pool of investors.

In order to list in Hong Kong, mainland companies must satisfy regulators and meet standards on corporate transparency. But even so, problems stemming from looser standards on the mainland often surface.

Chinese banks could prove risky because of their many loans to the property sector, which is slumping after booming for years.

"Fund managers are worried about potential increase in bad debts," Xie said.

The risks of investing in companies linked to China were driven home by the near-backruptcy of China Aviation Oil (Singapore) Corp. The company, China's main jet fuel supplier, revealed late last year that it had lost more than $500 million by placing bets on the future price of oil.

Investor confidence in Bank of Communications was buoyed somewhat when London-based HSBC Holdings PLC bought a 20 percent stake in the bank last August and appointed the head of its China business as vice president at the bank.

Shenhua Energy, however, is entirely state-owned. It operates 21 mines in China and produced about 5 percent of the country's total raw coal output last year.

The initial price of Shenhua shares _ HK$7.50 (96 cents) each _ is at the low end of expectations, probably prompted by concerns that Chinese coal prices may peak this year and general worries about the mediocre performance of Chinese stocks this year.

The so-called H-share Index, which tracks mainland Chinese companies listed in Hong Kong, has fallen about 1 percent this year to 4,716.

Still, there's plenty of interest in the IPOs among Hong Kong-based investors.

"There aren't many attractive stocks to buy in the market at the moment," said Lau. "Comparatively, the downside of buying new stocks is relatively limited. That's why many people are interested."

Shenhua's low price _ and the opportunity to tap into China's growth _ makes it appealing, says Liu Yang, a fund manager at Atlantis Investment Management Hong Kong.

"I think it is a better investment than Bank of Communications," Liu said. "You have more chance to make money because there are more bank IPOs coming and you have many, many choices."

Before the year is over, China plans an even larger IPO _ China Construction Bank's expected $5 billion offering.

That would surpass last year's biggest IPO anywhere: telecommunications company Belgacom SA, which raised $4.4 billion on the Euronext exchange.

© 2005 The Associated Press