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Sichuan Expressway IPO coming

(China Daily/Reuters)
Updated: 2009-07-02 08:04

Chinese regulators have given Sichuan Expressway Co final approval to float shares in Shanghai in the mainland's first major IPO since last September, which will raise at least 1.4 billion yuan.

"The China Securities Regulatory Commission chairman has signed the final approval notice for the firm to issue shares," a source familiar with the deal said yesterday. He could not be quoted by name, as he was not authorized to talk to the media.

The Hong Kong-listed toll road operator will issue up to 500 million yuan-denominated A shares on the Shanghai Stock Exchange, or 16.35 percent of its expanded share capital after the IPO, according to the source and the firm's draft prospectus issued in June 2008 when it won initial regulatory approval.

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China has given approval to three smaller companies to launch offerings on the Shenzhen Stock Exchange since last month's lifting of a quiet ban on IPOs.

That ban was imposed last year during a market slump but China's stock market has since rebounded, with the benchmark index surging more than 60 percent so far this year on ample liquidity in the financial system and signs that the economy is recovering from the global financial crisis.

In its draft prospectus, Sichuan Expressway said it would spend 1.1 billion yuan to buy expressway assets from its controlling shareholder.

Based on the HK$3.17 value of Sichuan Expressway's Hong Kong-listed shares, the company would be able to raise 14 billion yuan, but the mainland-listed A shares of dual-listed Chinese firms often enjoy huge premiums over their Hong Kong-listed counterparts.

The average premium of mainland listed shares over Hong Kong-listed shares in the same firms was at 38 percent at the close on Tuesday, while the premium of a comparable company, Shenzhen Expressway, stood at 81 percent. Hong Kong's financial markets were closed yesterday for a holiday.

Chinese investors also typically favor IPOs, which will likely give Sichuan Expressway's valuation a substantial boost in the Shanghai offer.

Guilin Sanjin, the first offer in Shenzhen in this year's IPO resumption, was 584 times subscribed for the key retail portion of its issue on Monday. It attracted a huge 455 billion yuan in investor subscription funds, including the smaller institutional portion.

The second IPO, Zhejiang Wanma Cable Co, to be subscribed on Thursday, has been priced at 31 times earnings, compared with an average 25 times historical earnings for Chinese A shares.

Around 30 other companies, including Everbright Securities, a top-10 brokerage, and China State Construction Engineering Corp, the country's biggest home builder, have also won initial approval to go public and are on a waiting list for the final go-ahead.

The resumption of IPOs is expected to push at least 100 billion yuan in new shares onto the mainland markets this year, according to Reuters calculations.