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First Heavy IPO falters on government tightening

(China Daily/Agencies)
Updated: 2010-02-10 09:57

China First Heavy Industries, which makes equipment used in the mining and energy industries, fell in its first day of trading in Shanghai, bolstering speculation demand for IPOs is drying up as stocks drop.

China First Heavy, based in Northeast China's Heilongjiang province, lost 3.2 percent to 5.52 yuan, compared with a 0.5 percent gain for the benchmark Shanghai Composite Index. China First Heavy raised 11.4 billion yuan selling shares at 5.70 yuan each, less than the high end of a marketed price range of 5 yuan to 5.80 yuan.

The stock follows China XD Electric Co and China Erzhong Group Deyang Heavy Industries Co this year as the first initial public offerings (IPOs) to falter since 2004 amid concern the government will tighten monetary policy to contain inflation and bubbles in asset prices.

"The decline in the China First Heavy IPO illustrates what happens when you combine demanding valuations with monetary tightening and heightened macro uncertainty," Emil Wolter, Singapore-based head of Asian Regional Strategy at ABN Amro Bank NV, said. "Clearly an episode like the one today is unlikely to help investor sentiment and so soon the authorities might move to install some measures to try and shore up the market."

The China Securities Regulatory Commission halted share sales in September 2008 to stem a decline in the benchmark index. It changed the IPO pricing system in May and resumed approvals of IPOs the following month to let companies price stocks based on investors' demand.

Demand for IPOs may be slowing again in China, where the Shanghai Composite has lost 10 percent this year after rallying 80 percent in 2009. All 117 companies that went public in the mainland last year sold stock at the top end of their price ranges, and none fell on their debut.

'Risky place'

"Even if the A-share market has fallen since August 2009 it is still overvalued and frankly the inflationary dynamics make China a pretty risky place," Wolter said.

China started tightening monetary policy last month, when the banking regulator unexpectedly raised the proportion of deposits lenders have to set aside as reserves to check credit growth. The nation's property prices rose in December by the most in 18 months.