October 19th, 2011 | Global Times Sinohydro surges on debut
Shares of Sinohydro Group, China’s largest dam builder, surged on Shanghai debut Tuesday, triggering a drop in the Shanghai stock market but bringing encouraging news for other big initial public offering (IPO) hopefuls.
Sinohydro’s shares closed at 5.27 yuan ($0.83) on its first trading day, a gain of 17.11 percent from its IPO price of 4.50 yuan. The stocks soared nearly 40 percent to 6.23 yuan in the morning session, activating a stock exchange rule that requires a half-hour suspension of trading in the event of a rise of 30 percent or above.
The State-owned company’s debut performance is far better than the market forecasts, which earlier predicted its shares would hover around or even fall below the IPO price on the first trading day.
“Sinohydro’s share surge was boosted by a series of policies, especially after Central Huijin Investment Ltd, an arm of China’s sovereign wealth fund, bought shares in four major Chinese State-owned banks on the secondary market last week,” Li Bin, a stock analyst at Jiangsu-based Guolian Securities, told the Global Times.
Sinohydro cut its IPO size in response to weak market demand in September, pricing the offer at the bottom of an indicative range and raising 13.5 billion yuan, nearly 20 percent lower than the original target of up to 17.3 billion yuan. But it is still the mainland’s biggest IPO so far this year.
Li said Sinohydro’s surge of nearly 40 percent also dragged the benchmark Shanghai Composite Index down by 2.3 percent Tuesday, as the IPO accounted for nearly one-fifth of the market’s transaction volume in the morning.
“It also reflects investors’ weak confidence in China’s A- share market, because they prefer to speculate on a new share rather than make long-term investment,” Li noted. “Sinohydro’s stock price is likely to drop in future, possibly below the IPO price.”
But some experts have expressed optimism over Sinohydro’s long-term performance as China aims to expand its hydropower capacity.
“With the power shortage problems triggered by conflicts between coal and electricity companies, as well as the country’s continuous efforts to reduce carbon emissions, hydropower is becoming more important, which will benefit dam builders including Sinohydro,” Li Ting, an energy analyst at the Distribution Productivity Promotion Center of China Commerce in Beijing, told the Global Times.
Sinohydro’s debut performance may bode well for other upcoming big IPOs, including those by China Communications Construction Co, Shaanxi Coal Industry and New China Life, analysts said.
China Communications Construction, the country’s biggest builder of ports, plans to raise 20 billion yuan in a Shanghai IPO, and miner Shaanxi Coal also plans to raise up to 17.3 billion in Shanghai.
By Chen Yang