Mainland IPOs Set to Bloom

Total funds raised through initial public offerings (IPOs) in China are expected to rise nearly 47 percent to 152 billion yuan ($22.21 billion) this year from 103.5 billion yuan in 2008, according to a report from PricewaterhouseCoopers.
 

The report, released yesterday, goes on to add that it expects the capital markets to recover later this year and the bulk of the listings to happen in the second half.
 

The total number of new listings this year is expected to touch 88, with 80 of them on the Shenzhen SME Board, said the report.
 

"In particular, we expect companies related to infrastructure, financial institutions, industrial and consumer products and retail to benefit from China's 4 trillion yuan economic stimulus plan. New issues in these sectors would also pick up gradually," said Frank Lyn, China markets leader of PricewaterhouseCoopers.
 

The unfavorable fund-raising environment for large enterprises is expected to continue into 2009, but financing activities on Shenzhen's SME Board would continue to remain active, said Lyn.

"Given the growing uncertainties in the economy and capital market, individual investors now prefer speculative buying rather than being long-term holders," he said.

The average P/E ratio of new listings this year would be around 20 to 30, compared with the current 15 P/E ratio of A-shares, the report said.

"Market sentiment is expected to remain weak in the first half of this year, and we expect most of the new listings in the second half," said Charles Feng, lead partner in the Beijing office of
PricewaterhouseCoopers.
 

China's stock market went through a significant adjustment last year, amid the global financial turmoil and economic recession. The benchmark Shanghai Composite index fell nearly 70 percent last year.

The combined total IPO funds raised in Shanghai and Shenzhen stock exchanges fell 78 percent last year from the 2007 levels of 477.1 billion yuan.
 

In 2008, the amount of funds raised through IPOs accounted for about 33 percent (vs. 62 percent in 2007) of the total equity funds (312.7 billion yuan as of Nov 30, 2008) raised in Shanghai and Shenzhen. Placements, rights issues and consideration issues of listed companies accounted for the balance 67 percent.
 

The total number of IPOs in the two stock exchanges was 77 including 6 in Shanghai (25 in 2007) and 71 in Shenzhen (101 in 2007), falling 39 percent from 2007.
 

Out of the 77 IPOs in 2008, there were only three A-shares issued by H-share companies listed on the Hong Kong Stock Exchange, while there were 12 in 2007.
 

"But we are still expecting three or four domestic enterprises to adopt a dual listing mode (A+H shares) this year," said Feng. "But many of the Chinese companies which are registered and listed in Hong Kong may not return to the Shanghai bourse this year as the mainland market may not be as attractive as it used to be in 2007."