China State Construction shares hit 90% on first day in Shanghai
China State Construction Engineering Corp. jumped 90 percent on its first trading day in Shanghai as confidence in the nation’s economic recovery stoked demand for the world’s largest initial public offering in 16 months.
Beijing-based State Construction, the nation’s biggest homebuilder, surged as high as 7.96 yuan at 9:45 a.m. from its 4.18 yuan offer price. About 3 billion shares changed hands, triple yesterday’s total trading in companies on the Standard & Poor’s 500 Index.
Shanghai’s benchmark index has more than doubled from last year’s low as a $585 billion government stimulus and record lending revive the world’s third-largest economy. Since a nine- month ban on IPOs was lifted in June, all five companies that went public soared on their debuts, defying attempts by the securities regulator to curb first-day speculation.
“There’s too much liquidity in this market,” said James Liu, Shanghai-based deputy chief investment officer at APS Asset Management, which runs a $300 million fund of shares traded on the mainland and didn’t participate in the IPO. “It’s getting more difficult to pick stocks these days.”
BBMG Corp., the biggest cement supplier in Beijing, advanced as much as 65 percent today on its first trading day in Hong Kong.
State Construction received 1.85 trillion yuan of bids for its IPO, more than the market capitalization at the time of Norway, Russia and at least 48 other advanced and developing nations, even after selling stock at a higher valuation than the other companies that went public in China this year.
State Construction traded at 6.91 yuan at the 11:30 a.m. break in Shanghai for a 65 percent gain, valuing the stock at 42 times last year’s profit according to Bloomberg data. The Shanghai Composite Index of 896 companies trades at 37 times earnings after surging 86 percent this year. The rally pushed China past Japan as the world’s second-largest stock market by value this month.
“Feverish investor sentiment is driving up the stock price,” said Wang Xiaoyong, a Shenzhen-based analyst at China Merchants Securities Co.
Trading in State Construction shares surpassed the 2 billion end-of-day volume in PetroChina Co.’s Shanghai debut in November 2007. State Construction sold 12 billion shares to the public, half of which are immediately tradable.
“I’m very happy with the opening price,” State Construction Chairman Sun Wenjie said today during a briefing at the Shanghai Stock Exchange. “I couldn’t sleep last night.”
State Construction’s 50.2 billion yuan sale is the biggest in China since PetroChina raised 66.8 billion yuan in October 2007, and the largest since Visa Inc.’s $19 billion IPO in March last year. China International Capital Corp. was the sole underwriter.
The company’s profit fell 44 percent in 2008 to 4.92 billion yuan because of the slowing property market, rising raw material prices and higher tax payments. It is predicting a recovery this year, as the government’s 4 trillion yuan stimulus package begins to revive the world’s third-largest economy.
State Construction owns about 34.3 million square meters of land reserves and plans to use them to expand in real estate development, according to its share sale document. It plans to use as much as 8 billion yuan of the IPO proceeds for 24 commercial housing projects requiring a total investment of 15.8 billion yuan.
China’s urban home prices rose for the first time in seven months in June, the National Development and Reform Commission said July 10.
Below First Close
The four other companies that went public in China this year have cast doubt on the securities regulator’s efforts to curtail excessive first-day gains.
Your-Mart Co., Guilin Sanjin Pharmaceutical Co. and Zhejiang Wanma Cable Co., which all jumped in Shenzhen debuts, have since fallen below their first-day closing prices. Sichuan Expressway Co., the first company in almost a year to go public in Shanghai, tripled on its July 27 trading debut, then fell by the daily 10 percent limit yesterday and again today.
Chinese demand for IPOs was bottled up after the securities regulator halted first-time sales for nine months to aid a stock market recovery. Companies who sold shares in Shanghai or Shenzhen last year gained an average 152 percent on debut, according to data compiled by Bloomberg.
Households in China, where individual investors control about half the stock market capitalization, hold $3.66 billion in bank savings — more than the nation’s gross domestic product in 2008.
“No institutions are getting in at these levels, the valuation is just crazy,” said Chris Tang, chief investment officer at Marco Polo Pure Asset Management in Hong Kong, which oversees about $120 million and didn’t apply for the State Construction IPO. “Traditionally IPOs make money, so retail investors are going to try their luck.”