China Communications Construction trims Shanghai IPO by 75%

China Communications Construction Company (CCCC), China’s leading port and railway builder, has slashed the size of its Shanghai initial public offering.

Having originally set out last year to raise Rmb20 billion through the sale of 3.5 billion shares, the company is now planning to raise just Rmb5 billion ($791 million) from the sale of 1.6 billion shares, or 9.74% of its enlarged capital, according to a statement filed to the stock exchange in Shanghai yesterday.

CCCC made the announcement one day after China Oilfield Services scrapped a planned $1.1 billion share sale in Shanghai. On the first working day of the year of the dragon, the company noted the gloomy market conditions and said that it had enough capital to sustain its operations, according to a filing to the exchange.

CCCC’s decision has led to speculation that the builder may suffer a decline in orders from both domestic and overseas markets this year.

Although it is widely expected that Beijing will ease monetary policy to maintain its investment-driven growth this year. Qu Hongbin, a regional economist at HSBC, has pointed out that “2012 will be an easing year for China”, adding that builders may not be able to embrace as much liquidity as they did in 2008.

“I don’t have an optimistic outlook over China’s infrastructure in 2012,” said an infrastructure analyst. “There has been too much debt taken on by the local governments.”

In 2008, Beijing announced a Rmb4 trillion stimulus package that would be spent during the following two years, with much of the lending directed to local authorities to fund road, railway and airport construction.

The building spree has left China with a lot of unused airports and mountains of debt at the local government level, which has become one of the biggest threats to China’s economy — alongside the overheated property market.

According to the latest data available from the National Audit Office of China, the debt owed by local governments stood at Rmb10.7 trillion ($1.6 trillion) by the end of 2010, of which 79% were bank loans and 53% will be due by the end of 2013. 

Outside the domestic market, CCCC has projects in 80 countries, mainly located in Africa, the Middle East and South America. Analysts reckon global market uncertainties in 2012 will weaken demand for contractors. CCCC has five projects in Libya involving a total investment of Rmb15 billion that have been left unfinished due to the country’s turmoil last year, the company said in an IPO prospectus.

The state-owned company’s deal was expected to be the largest Shanghai IPO so far this year. The city’s primary market was dominated mostly by small deals in 2011, when companies raised $16 billion from IPOs, according to Dealogic. The Shanghai index fell 22% last year.

The company will release the offering price range on February 14. BOC International and Guotai Junan Securities are bookrunners of the deal.

CCCC, which is listed in Hong Kong, saw its shares climb 21% in the first four weeks of trading this year, though the stock closed 1.7% lower at HK$7.2 ($0.92) yesterday.

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