China’s decision to end a 15-month freeze on initial public offerings (IPOs) may unleash at least $11 billion (R113bn) of share sales in next year’s first half.
More than 760 mainland Chinese companies are waiting to go public. Their plans were halted when regulators imposed the moratorium in September last year.
State-owned companies are expected to be among the first to list. Shaanxi Coal Industry planned to seek as much as $2bn, two people with knowledge of the matter said, while China Postal Express & Logistics, the nation’s biggest package shipper, might raise $1.5bn.
The IPOs underscore the pent-up need for cash among companies even as Chinese stock valuations are near a decade low.
“It’s going to be good for everyone,” said Eric Jackson, the president of Ironfire Capital, a Florida-based hedge fund that invests in Chinese stocks. “The Chinese can only invest in domestic stocks, so deciding to loosen the rules on IPOs will give Chinese more places to invest and hopefully take some air out of the property bubble.”
The $11bn estimate for IPOs was based on the filings of 76 companies that have been approved or are close to getting approval to sell shares on the Shanghai and Shenzhen main boards. It doesn’t include IPOs on the ChiNext market for start-up companies.
Proceeds from listing could help ease the pressure on increasingly indebted Chinese companies, which owe interest equal to 12.5 percent of the country’s economic output, according to Fitch Ratings. That’s up from 7 percent in 2008.
Chinese regulators announced the plan to end the freeze on November 30, while introducing new rules intended to stamp out the price manipulation that in the past produced excessively high valuations for companies going public.
The regulator “has made it abundantly clear that it is determined to clamp down on” overpriced deals, said Zhang Qi, a Beijing-based analyst at Zero2IPO Group. “Companies and underwriters will definitely be more rational in pricing.”
Among companies that went public between June 2009, after the end of a previous IPO freeze, and September last year, 41 percent are trading below their offer price. That’s even after the stocks surged an average 35 percent on their trading debut. Price-to-earnings ratios in Chinese IPOs averaged 58 in 2010 and 48 in 2011. Valuations fell 36 percent in 2012.
The Shanghai composite index trades at 11.2 times earnings. – Bloomberg