A tale of two halves

Rapid swings in investor sentiment towards China bode well for a second half of financing.

Blink and you will have missed it. The change in sentiment towards China over the past few weeks has been quite startling. China – long an obsession with all international financiers and business people – is particularly prone to the the vagaries of greed and fear that govern international capital markets. In the first half of the year, fear ruled. But now optimism and greed are firmly back in.

The agreement signed between China and its bilateral trading partners to enable China to join the World Trade Organization (WTO) was the main catalyst for the change in sentiment. Other significant announcements include:

  • the potential eradication of the A and B share model;     
  • the merger of Shandong Huaneng and Huaneng International Power;     
  • the tacit acceptance of gradual convertibility of the renminbi;     
  • moves to clear up the banking system; and     
  • a resurgence in growth after seven years of decline.

All these factors have been grasped by the markets as undeniable proof that China is changing. The Shanghai B share market is up 55% since the start of the year.

What this means for the financing market is hard to gauge at this stage. But it looks likely that Chinese companies coming to market in the second half of the year will have a much easier ride than their counterparts that chose to raise money early in the year.

When China National Offshore Oil Company (Cnooc) pulled its IPO at the end of last year, investor sentiment towards China appeared to be at rock bottom. The controversial Petrochina deal caused global controversy. It seemed that anyone with even the slightest gripe against the Chinese authorities used the Petrochina IPO as their vehicle of protest.

Then there was the furore over the irregular corporate structures that Chinese internet companies had to adopt to allow foreign money into the company while maintaining mainland ownership. Companies such as Sina.com, Sohu.com and Netease.com all had a hard time explaining their rather bastardized corporate structures to international investors.

The ambivalence of foreign investors and financiers towards China was perhaps best demonstrated by the China Unicom deal. First, the Chinese government mandated that all the China-China-Foreign joint venture contracts had to be unravelled. This predictably caused a hail of protests with many of the jilted foreign telecom companies vowing never to do business in China again. Two months later, nearly all of them subscribed to one of the largest and most successful IPOs this region has ever seen.

So with this change in sentiment, we should see an acceleration of Chinese listings. The next big one will be Sinopec, which has already confidentially filed with the SEC for a deal that could be as large as $5 billion. Following that will be a whole host of potential listing candidates that are listed below. With China Mobile in the wings looking to do another mammoth secondary financing, there will be no shortage of demand for international money. With international sentiment as it is, that demand could be matched by investor appetite for China again.

 

China Equity New Issue Pipeline

COMPANYAMOUNT ($M)SECTORWHEN

Anhui Xinji Energy Development

140

Natural Resources

2H’00

Bank of China

2,000

Financial Institutions

2H‘00

Bai Jia Email

TBA

Internet

2H‘00

Baoshan Iron and Steel

1,000

Natural Resources

3Q’00

China Infobank

TBA

Internet

‘00

China National Offshore Oil Corporation (CNOOC)

2,000

Natural Resources

3Q’00

China Netcom

1,000

Telecom

4Q’00

China Petrochemical Corporation (Sinopec)

2,500

Natural Resources

3Q’00

China Power International

500

Natural Resources

‘01

China Shipping Development

125

Transportation

2H‘00

Hebei Expressway

200

Infrastructure

2H‘00

Jitong Communications Ltd.

120

Telecom

2H‘00

MeetChina.com

TBA

Internet

3Q’00

Ningbo Beilun Port

150

Infrastructure

2H‘00

Panjing Ethylene Industries

200

Natural Resources

2H‘00

Qinghai Aluminum

100

Industrial

2H‘00

Shandong Expressway

240

Infrastructure

2H‘00

Shenzhen Infolink

100

Internet

‘00

Zhaodala

TBA

Internet

2H’00

Source: Salomon Smith Barney