China Railway's strong HK debut signals renewed interest in mainland listings
China Railway Group, Asia's largest construction contractor, gave a solid showing on its Hong Kong debut Friday, signalling renewed investor interest in Chinese listings and continued confidence in the mainland's economic outlook.
China Railway's Hong Kong-listed shares put on 1.58 Hong Kong dollars or 27 percent to 7.36 dollars at the close against an initial public offering price of 5.78.
The stock surged nearly 30 percent after opening at 6.80 dollars.
On Monday it also debuted strongly in Shanghai, up about 70 percent at 8. 09 yuan against its IPO price. The yuan-denominated A-share closed at 8.44 yuan Friday.
Previous listings in Hong Kong had disappointed the market and investors were understandably wary about how China Railway would fare. The stock was seen as a litmus test of how new offerings in the pipeline would be received by investors.
""Following the fizzled aftermarket performance of Sinotrans Shipping and Sinotruk, investors are nervously eyeing the trading debut of another big Chinese IPO -- China Railway Group,"" Thomson IFR said ahead of the listing.
""China Railway's gains were in line with expectations,"" said Kitty Chan, director at Celestial Asia Securities Holdings.
""Hopefully it's a sign of better listings to come,"" she said.
Sinotruk, China's leading heavy truck manufacturer, saw its shares drop 15 percent on their first day of trading in Hong Kong last month. It was the worst debut on the bourse this year.
Before that, Sinotrans Shipping, a dry bulk carrier in China, fell 13 percent on its market debut in the territory.
China Railway's strong fundamentals given its leadership in the mainland's railway construction sector was the driving force for its solid debut, analysts said.
The company built the world's highest railway connecting Tibet to Western China, and constructed more than two-thirds of China's 75,000 kilometers of railway links plus 95 pct of the nation's electric rail lines.
""The booming economy (and) solid fundamentals should support the counter over the long-term,"" said Castor Pang, investment strategist at Sun Hung Kai Financial.
Analysts expect the company to take a leading role in the construction of more transportation systems in China, making the stock an ideal long-term investment.
Setting the momentum
Beijing has budgeted 1.5 trillion yuan for its rail network over the next four years, the biggest in its history. The mainland is set to upgrade its railway system with a plan to build a bullet train from Shanghai to Beijing.
China's rapidly-growing economy and brisk trade are boosting demand for faster and more sophisticated means of transportation, brightening prospects for companies like China Railway.
The country's gross domestic product expanded more than 11 percent in the last two quarters, and the International Monetary Fund is forecasting growth of 11.5 percent for the full year, up from 11 percent in 2006.
Next year, growth may slow to 10 percent, it said.
China Railway's strong gains Friday set the momentum for future Chinese listings in the city and signalled investor preference for IPOs by companies with strong growth prospects.
China Railway closed at 6.60 Hong Kong dollars in the grey market yesterday, 14 percent higher than its IPO price of 5.78 dollars, IFR said.
The company priced its IPO at the top end of its target range.
Fund managers were expecting a first day gain of up to 30 percent, said IFR.
China Railway raised 19.22 billion dollars from its Hong Kong IPO which was managed by ABN AMRO Rothschild, BOC International, JPMorgan and UBS.
Other upcoming IPOs include that of Sinosteel, which plans to raise 1.5 billion US dollars through Hong Kong and mainland listings in the first half of 2008, IFR said. Sinosteel is a steel producer and mineral trader in China.
Meanwhile, mainland department store operator PCD Stores has decided to postpone its IPO due to delays in documentation, IFR said. The delay has nothing to do with the volatile Hong Kong stock market, it said.