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China Metallurgical fails to sizzle on debut

(China Daily/Agencies)
Updated: 2009-09-22 08:28

Metallurgical Corporation of China Ltd rose 28 percent on its first day of trading in Shanghai, less than half this year's average debut gain, as rising supply and valuation concerns weighed on demand.

China Metallurgical, the construction company that helped build the "Bird's Nest" Olympic stadium in Beijing, closed at 6.94 yuan ($1.01) from the 5.42-yuan (79 cents) offer price. The company raised 18.97 billion yuan (in the nation's second-biggest initial public offering of 2009).

The State-owned contractor that builds mines and factories trailed the average 68-percent first-day advance of the 22 other IPOs this year after selling stock at 41.9 times last year's earnings compared with 32 for the benchmark index. Chinese companies raised 96.1 billion yuan in local IPOs since a nine-month moratorium on sales ended in June.

"China Metallurgical's pricing is not very attractive if you compare it with existing steel and metal companies," said Helen Lau, a Hong Kong-based analyst at OSK Securities Hong Kong Ltd." Still, it's in the range of fair pricing, only that it didn't offer a discount."

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China's securities regulator changed pricing guidelines for IPOs this year to make valuations reflect more closely what investors are willing to pay.

The biggest gain since the ban was lifted was for Sichuan Expressway Co, which tripled on its debut on July 27. The toll road operator raised 1.8 billion yuan in its IPO. The worst first-day performer was Foshan Saturday Shoes Co, which rose 23 percent on its first day.

The Shanghai Composite Index gained 0.2 percent yesterday and has climbed 63 percent for this year. Shares have been boosted as the government spends 4 trillion yuan to help achieve its target of 8 percent economic growth.

China Metallurgical, which begins trading in Hong Kong on September 24, expects to benefit as the government encourages steelmakers to replace old mills.

"We can secure continued rapid growth," Shen Heting, China Metallurgical's president, said on September 10. Consolidation of the steel industry and environmental measures will "create a huge source of contracts for overhaul orders", Shen said.