China’s primary equity market is showing signs of a pick-up as issuers resurface with plans for sizable initial public offerings, betting on a market rebound in the second half. Not surprisingly, those braving the market are government-backed enterprises with strategically important businesses.
China Railway Materials, a state-owned provider of supply-chain services, is aiming to raise Rmb6 billion ($942 million, or less than half its original plan) in a Shanghai IPO, the company said in an initial prospectus to the China Securities Regulatory Commission (CSRC). It told the environment ministry late last year that it planned to raise Rmb14.7 billion.
China requires companies with operations that could be harmful to the environment to first get the nod from the environmental watchdog before seeking approval from the securities regulatory for fundraising activities.
The share sale suggests China still harbours ambitions to upgrade and expand its railway network — a symbol of its leap towards modernity, despite the economic slowdown. But the downsizing of the deal also reflects increased caution towards investor confidence.
The offering comprises 33% of the company’s enlarged share capital, and it will follow the Shanghai IPO with an H-share offer of up to 1.44 billion. It did not say how much it intended to raise and added that the offering is subject to regulatory approval and market conditions.
Citic Securities is the lead underwriter for its Shanghai offering.
China’s Shanghai and Shenzhen bourses had a weak first half in 2012; a total of Rmb77.5 billion was raised through 105 IPOs during the first six months this year, down by 56% in value and 38% by volume, year-on-year, according to PricewaterhouseCoopers. The firm has forecast that there will be 200 to 250 companies listing on the two exchanges (40 in Shanghai, 160 to 210 in Shenzhen), with Rmb200 billion to Rmb250 billion of funds raised in total.
It is widely expected that China’s monetary policy easing is likely to trigger some re-bound in equities. “China’s second-quarter economy is likely to dip to below 7.5% which is the government’s tolerant level, but easing monetary policies will help boost liquidity in the market,” said Ding Shuang, a China economist at Citi.
The latest financial results show that China Railway Materials made Rmb1.1 billion net profit in 2011, a more than 52% jump from the previous year, but the company’s debt ratio climbed further to 85% by the end of last year.
The company plans to use the proceeds to fund its domestic logistic bases and operating networks as well as to replenish working capital, it said in the prospectus. It will also use the fund to repay bank loans.
Earlier this month, the resort management of Putouo Mountain said it plans to raise Rmb750 million in the domestic stock market.