Guilin Sanjin sets the China IPO ball rolling

Guilin Sanjin sets the China IPO ball rolling
Institutional and retail investors are waiting to see how the country's first-to-be listed company would perform on the bourses after the regulators lifted a nine-month ban on initial pubic offerings (IPOs) late last Thursday. Guilin Sanjin Pharmaceutical Co, which got approval to raise 634 million yuan ($92.79 million) through an IPO, held its first road show in Beijing yesterday. The fair attracted over 100 institutional investors, including brokers, fund management firms and trust companies. More than 100 offer documents that were piled up at the reception were handed out to the visiting investors and the hotel waiters kept repeatedly asking for more chairs in the meeting room. "The road show for such a medium-sized company usually attracts around 70 to 80 people. But this road show attracted over 100 people," said Wang Jianzheng, senior manager, China Merchants Securities, the company's main underwriter. "Since it is the first IPO deal in nine months, the rush is understandable," he said. During the two-hour road show, many institutional investors were seen evincing interest in the company and actively engaged in clarifying their queries. "The interactions at the road show really nice and cordial," said Zou Wenxin, manager, colligation department, China Minzu Securities. The question and answer session lasted for over one hour and had to be concluded due to time constraints. Most of the questions centered on the company's product sales and how it was planning to deploy the funds raised, Zou said. China Merchants Securities has suggested a price range of 17 yuan and 21 yuan for the company's shares, while its earnings per share is about 0.67 yuan. "Based on this assumption, the company's P/E (price-earnings) ratio is about 25 to 31 times, while the average P/E of China's stock market is about 30," said Zou adding, "as such, the company's P/E ratio looks reasonable." Guilin Sanjin will also hold road shows in Shanghai and Shenzhen in the next two days and arrive at the issue price by Friday. "Institutional investors must be extra vigilant unlike the past as they now need to specify both the price and number of shares while subscribing," Jin Daan, senior manger with China Merchants Securities, said. Marketmen aver that though the bourse may feel the impact of corrections after IPOs return, some cushion has been provided by the recent government directive of earmarking part of the proceeds from the listing of State-owned enterprises to the national pension fund, primarily to ease market volatility. Buoyed by the news, the benchmark Shanghai Composite Index rose 0.55 percent to 2896.3 points at close yesterday, the highest since July 28, 2008. The smaller Shenzhen Composite Index sank 0.46 percent, or 51.58 points, to end at 11190.71. The rally comes after a jump of 0.9 percent last Friday after the securities watchdog lifted the ban on new listings. As of yesterday, the major gauge has jumped over 59 percent since the beginning of 2009. "New issues are back in favor as the market sentiment has picked up," said Wu Feng, analyst, TX Investment Consulting Co Ltd, adding that the increasing share supply can be bolstered further by the large capital inflows. The resumption of IPOs is also a long-term stimulus for China's macro economy as it permits cash-strapped enterprises' to access funds from the capital market, said Zhang Fan, senior analyst, Changjiang Securities. Zhang suggested that the regulator should utilize technical adjustments to check the possible market fluctuations. "The decision to transfer part of State-owned companies' shares to pension funds can be justified as a measure to stabilize the market," Zhang said. The Ministry of Finance and the China Securities Regulatory Commission announced on Friday that companies must transfer the equivalent of 10 percent of their shares sold in IPOs on domestic stock markets to the national pension fund to increase assets to the welfare system. This year's scheduled release of a total of 690.6 billion non-tradable shares is four folds more than in 2008. The transfer of State-owned firms' shares, which will prolong the lock-up period for another three years, will therefore alleviate investors' rising concerns on new scrip floods, Wu said. But most shares in brokerage and medical sectors dropped yesterday after a drastic advance last Friday triggered by Guilin Sanjin's upcoming listing. Three out of four listed brokers sank yesterday, led by Haitong Securities, which dropped 1.81 percent. Only seven stocks out of 93 medical companies trading yesterday closed higher after out performing last week on the HINI epidemic and their peer Guilin Sanjin's share float.