The Chinese markets are back to doing what they do best - producing insane IPO stats. But the return to form may be brief.
China Railway Construction has triumphed in the popularity stakes, as the most-oversubscribed Hong Kong listing - ever. The Hong Kong retail portion of the $5.5bn dual listing was 250 times oversubscribed - representing orders worth about $58bn. The Shanghai portion of the deal last week was also inundated, but fell short of the top spot, with Reuters reporting it as only the fourth best received offering in the local market.
The high demand allowed CRC to price its Hong Kong listing at the top of the indicated range, at about 28.7 times forecast earnings. That might appear high but some analysts pointed to the valuation discount to CRC’s peers as reason for its appeal, despite rocky markets. Rival China Railway Group trades on about 37 times forward earnings.
But is there a chasm opening here between the willingness of the Chinese to pile money into new issues and their prospects of a decent return? The Hong Kong market has lost more than a quarter of its value since peaking in October, while Shanghai is down by a third. High earnings multiples in the region relative to elsewhere are one reason why analysts still think the markets have further to go. The on-going fall-out from US subprime and the squeeze on credit is another.
The Xinhua/Milken Chinese IPO indicator is already indicating that global volatility has put a dent in the confidence of the Chinese in the growth prospects of their stock market. January brought the largest month-to-month fall in the measure in more than 10 years, as all eight stocks that went public ended the month down.
While offerings such as these, and Reliance Power in India, may have proved disappointing, the emerging markets are succeeding where their developed counterparts have not in getting IPOs away this year. China is top of the IPO rankings, with double the proceeds of the same period last year, followed by India and Saudi Arabia. The US trails in fourth, with just over $800m raised, down more than 85 per cent on the start of 2007.
CRC has already delivered in terms of garnering plentiful investor support. But it may yet fail to produce one of those eye-catching first day moves that the Chinese markets were apt to pop out last year.
Related links
China Railway IPO set to buck trend - FT.com
Brace yourselves - China’s IPO market may be on the turn - Alphaville
It’s a long way down - Alphaville
