Shares of three Chinese
firms soar 44 percent on debut, first listings in over 4
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[June 26, 2014]
SHANGHAI (Reuters) - Shares
of three small Chinese companies soared by over 40
percent in their debuts on Thursday in the first
mainland listings in over four months, highlighting the
challenges the stock regulator faces in weeding out
speculation and curbing volatility in the market. In a
sign of strong demand for new shares, all three
companies rose by 44 percent by mid-morning from their
IPO prices, the maximum amount allowed on the first day
The China Securities Regulatory Commission (CSRC) resumed the IPO
market earlier this year after halting listings for 14 months. But
after a two month flurry of activity, no offerings were approved
until early June, when seven companies, including the three that
debuted on Thursday, got the go-ahead.
The CSRC has said it will stop involving itself in IPO pricing and
move to a registration-based system similar to that employed in
developed economies where the market effectively decides who gets to
list and for how much.
However, the watchdog has so far kept a tight leash on supply and
pricing, announcing earlier this year that companies which set their
IPO price-to-earnings (PE) ratios higher than the ratios of
industrial peers in the secondary market will need to publish
repeated risk warnings before they open subscriptions to retail
investors. It has also carried out spot checks on price
consultations and pre-marketing of IPOs.
“A lot of regulators try not to interfere in the IPO price and there
is a lot of reason to support this trend, but China has its own
special economic arrangement," said Ringo Choi a partner at Ernst &
"The CSRC has its own reasons to monitor pricing, so the stock
market will not overheat, which is in line with the general planned
economic policy in China.”
Last month, state media quoted the head of the CSRC as saying about
100 IPOs were expected for the rest of this year, which would bring
the full-year tally up to 150, about half the number forecast by
consultants including PwC.
While the regulator's move to control pricing will help protect
investors from getting burned by buying mispriced IPOs as has
happened in the past, it has also set off a rush for new shares.
The three IPOs on the Shenzhen stock exchange drew robust demand,
with subscription rates of between 120 and 218 times over the number
of shares on offer after the deals were priced at relatively cheap
[to top of second column]
The rush for the shares also continued in the secondary market with
shares of waste disposal firm Wuxi Xuelang Environmental Technology
Co Ltd, meat processor Shandong Longda Meat Foodstuff Co Ltd and
Feitian Technologies Co Ltd, a digital security firm, all jumping by
the maximum 44 percent.
Pensioner Xu Hongxiu, sitting in small brokerage office in downtown
Shanghai and eating rice porridge she brought from home, said she
had hoped to get a slice of the rally but was unable to buy any of
the new shares despite repeatedly bidding for them.
"I came to this brokerage very early this morning to buy a share of
today’s IPO companies. If I had been able to buy them, of course I
would make a lot of money," she said.
Retail investors like Xu are estimated to account for around
three-quarters of overall stock transactions on the country's two
(Reporting by Shanghai Newsroom; Writing by Kazunori Takada; Editing
by Matt Driskill)
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