China's IPOs lose luster as demand shrinks

Chinese public offerings, last year's most sought-after shares, are losing their luster.

Three Chinese IPOs in the past month fell almost 10 percent in their trading debuts. China Resources Peoples Telephone Co (華潤萬眾電話), a Hong Kong wireless company controlled by China's Cabinet, fell 8.2 percent yesterday. Semiconductor Manufacturing International Co (中芯國際) and Tom Online Inc dropped after US technology stocks slumped and China announced steps to curb economic growth.

"The concept of people buying into China to sell on the first day of trade at a profit is over," said Glenn Henricksen, a principal at CIF Consultants in Hong Kong, who bought shares in China Life Insurance Co (中國人壽), the world's biggest IPO last year. "The free money is finished."

The 10 IPOs that preceded Tom Online's sale produced average first-day gains of 36 percent. China Life got US$80 billion worth of orders for its shares when trying to raise US$3.47 billion. The demand for China Life's sale exceeded the total amount companies sold in initial share sales globally last year by a third.

"When the market was rising, investors would buy any new stock, sometimes not even knowing the name or business," said Andrew To, director of equity sales at Tai Fook Securities in Hong Kong. "The whole China IPO bubble has been pricked."

Evaporating means Chinese companies seeking US$18 billion later this year -- including Ping An Insurance Group (平安保險), China's second-largest life insurer, and China Netcom Corp (中國網通), a unit of the second-biggest fixed-line phone company -- may have to accept lower prices in their sales.

Still, it is too soon to say the investment window has closed for all China IPOs, said Michael Preiss, chief investment strategist at CFC Securities Ltd in Hong Kong. China Construction Bank (中國建設銀行), the nation's third-biggest lender, plans to sell US$5 billion this year.

"Stock sales from China aren't over for this year," Preiss said. "Strategic sales by the Chinese government, such as China Construction Bank, are too big to fail."

While in China Life's IPO were priced at the top of a range set by underwriters, Peoples Telephone stock was sold at HK$4.55, the bottom of the range. UBS AG, which arranged the HK$1.22 billion (US$156.6 million) sale, bought 8 percent of the offer because it couldn't find sufficient demand.

Last year's IPO demand was led by Hong Kong individuals, who under local rules may be allocated as much as half of the shares on offer. Hong Kong investors ordered about HK$27 billion of the China Life stock in December, applying for more than they wanted, assuming they would get fewer shares because of the excess demand.

"The risk now is you pad your order and you end up with all the shares you asked for," said Henricksen, 45, who sought 30,000 China Life shares and received 2,000.

Tom Online and Semiconductor Manufacturing started trading just after US stock indexes posted their biggest losses in four months. The NASDAQ Composite Index fell 5 percent between March 5 and March 11.

Tom Online fell 7.3 percent on March 11 after a US$194 million sale. Shares of the Beijing-based company, controlled by Hong Kong billionaire Li Ka-shing (李嘉誠), closed at HK$1.15 yesterday, 23 percent less than the stock's offer price.

Demand faltered after China said in March it would curb economic growth to prevent inflation from accelerating.

Fund securities firms and manufacturers including General Motors Corp are investing in China to profit from the world's fastest-growing economy. China expanded 9.1 percent last year and its premier, Wen Jiabao (溫家寶), on March 5 forecast growth would slow to 7 percent this year.