HONG
KONG - Plans by large Chinese state-owned
companies (SOEs) to issue new shares and bonds are
adding pressure to the country's A-share market,
which is already caught up in the global stock
sell-off amid growing worries of an impending
economic recession in the United States.
The benchmark Shanghai Composite Index
slid 266.07 points to close at 4,917.44 on Monday,
the biggest one-day fall in six months. The index
shed another 7% to near the 4,560 mark on Tuesday.
"The fragile balance of the stock market,
comprising overvalued
mainland stocks, can easily
be upset by changes in the domestic or overseas
investment environment," Nicole Yuen, head of UBS
China Equities, said yesterday.
As the
China A-share market continued its longest-losing
streak in more than seven weeks, Ping An Insurance
(Group) Co, the country's second-largest life
insurer and number three property insurer,
announced on Friday that it would issue more A
shares and convertible bonds to raise 160 billion
yuan (US$22 billion), the largest re-financing
ever.
Ping An raised about $2 billion in
its H-share initial public offering (IPO) in Hong
Kong in mid-2004. The company further raised 39
billion yuan in an A-share IPO in Shanghai in
February, 2007.
As the market continued
its decline on Monday, China Coal Energy Co, the
country's second-largest coal miner, said it plans
to begin trading its A shares on the Shanghai
Stock Exchange on February 1 following an IPO
expected to raise at least US$4.4 billion.
The China Securities Regulatory Commission
(CSRC) will meanwhile review on Wednesday an
application by China Railway Construction Corp,
one of the nation's largest road and rail project
contractors, for a dual-listing in Shanghai and
Hong Kong.
The company hopes to raise up
to $4 billion from the sale of 2.8 billion A
shares in Shanghai and at least 1.8 billion H
shares in Hong Kong.
These and other IPOs
may help absorb excessive liquidity in China,
boosted by the country's growing trade surplus.
The sale of shares by state-owned companies comes
after numerous measures such as higher interest
rates and increased reserve ratios for commercial
banks taken by a government keen to curb inflation
and cool the property market.
In a country
with few other outlets for savings and low
earnings on deposit accounts, the stock markets
have attracted increasing numbers of retail
investors keen to grow what money they have when
faced with the prospect of meeting health and
other costs previously met by the state.
Their investments helped the Shanghai
Composite Index climb 96.7% last year, making the
city's stock market the world's best performer
among major bourses in 2007.
A total of
242 Chinese enterprises were listed on domestic
and overseas stock markets last year, raising
about US$104.8 billion, according to the China
Securities Journal.
One hundred and
twenty-four were listed on the mainland's Shanghai
and Shenzhen stock markets, raising more than
US$65 billion, said the report, quoting a survey
by Beijing-based Zero2IPO, a consultancy in
venture capital and private equity (PE) issues.
The enterprises listed on the domestic
markets amassed about $25 billion more than their
peers listed abroad, Zero2IPO said.
Twelve
companies raised 85% of the funds, led by
PetroChina, the country's biggest oil producer,
China Shenhua Energy, the nation's largest coal
producer, and China Construction Bank, the
country's second-largest lender. PetroChina alone
raised 66.8 billion yuan, making it the world's
biggest IPO in 2007.
"The quick pace of
IPOs on the mainland will probably continue in
2008," said Li Feng, a senior equity strategy
analyst with China Galaxy Securities.
Li
Rongrong, head of China's State-owned Assets
Supervision and Administration Commission,
reiterated in December that the government was
encouraging eligible centrally administered SOEs
to list on stock markets or to gradually inject
their core assets into their listed arms.
The IPO market may also be expanded beyond
mainland companies. In December, CSRC chairman
Shang Fulin invited overseas firms and Hong
Kong-listed domestic companies to go public on the
mainland, and the Shanghai Stock Exchange said it
was considering introducing international firms
that performed well in China.
The Shenzhen
Stock Exchange, meanwhile, is preparing for a
Nasdaq-like growth board, expected to be
established within the next six months.
Even so, the prospect of a US recession,
the continuing decline in the world's share
markets and the impact of the government's
tightening measures may make Chinese investors
less enthusiastic buyers of new shares.
"The market trend in 2007 provided good
opportunities for those SOEs [that listed last
year] to get into the market," Ou Minggang, deputy
editor-in-chief of Chinese Banker magazine, was
quoted by Xinhua as saying. "Due to the recent
signals of a US recession and some uncertainties
in the Chinese economy, investors will be more
cautious this year."
China Coal, which
raised about US$1.7 billion from its H-share IPO
in Hong Kong in late 2006, plans to issue 1.53
billion A shares in Shanghai, with subscriptions
beginning Thursday. The company hopes to match the
success of larger rival China Shenhua Energy,
whose 66.58 billion yuan ($8.91 billion) domestic
share sale in September was the largest A-share
IPO, raising.
Shenhua’s IPO, however, came
as the market was setting record highs and before
the present sell-off.
China Coal Energy's
assets were valued at 55.29 billion yuan, with net
assets of 31.88 billion yuan as of the end of June
2007. Operating turnover in the first half of last
year was 16.93 billion yuan and net profit 2.44
billion yuan.
CSRC chairman Shang said a
US recession would affect China’s plans to expand
its stock market, with the prospect of a US
slowdown hitting profitability of export-oriented
enterprises, while Chen Jiwu, deputy general
manager of Fullgoal Fund Management Co Ltd, was
quoted by Xinhua News Agency as saying the
negative impact of US economic woes on the global
capital markets would continue.
Jonathan
Anderson, senior economist at UBS China Equities,
however, played down concerns over further
economy-tightening measures, saying said the
government is expected to ease macroeconomic
controls in the next three or four months.
Either way, "the A-share market will see a
lot of price fluctuations in 2008," said Yuen of
UBS, while adding that the bank is till interested
in investing in China's equity market, he said.
John Ng is a freelance
journalist based in Hong Kong.
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