Money-crazed Chinese companies are raising much more capital than they need, according to a distinguished fund manager.
China’s listed companies have raised huge sums from stock markets, but at a cost. The newly issued shares have been overpriced and the excessive funds have proved difficult to spend, according to Xie Wei, deputy general manager of Bank of Communications Schroder Fund Management (BoCom Schroder).
These observations are included in Xie’s proposal to improve the regulation of the A-share market, presented to China's annual National People's Congress (NPC). The 10-day meeting kicked off on Saturday (March 5).
Xie, who is the asset-management industry’s only representative on the National Committee at the Chinese People’s Political Consultative Conference, said the authorities must take action to curb “blind” and “impulsive” fundraising activities, Chinese media reported.
The statistics back him up. There were 349 IPOs in the A-share market in 2010, which is considerably more than one IPO per trading day. It is also more than the number of new share sales in the three years from 2007 to 2009 combined.
These capital-raisings injected 58 billion new shares into the A-share market last year for a total of Rmb488 billion ($74 billion) – or about Rmb210 billion more than the issuing companies needed, according to Xie. He notes that the average price-to-earnings (P/E) ratio of new shares on the main board was a sky-high 59, while on the secondary board it was an astronomical 70. Both are record levels.
Overall, including secondary-market issuance, 531 companies raised more than Rmb1 trillion in 2010, according to BoCom Schroder.
On top of that, Chinese banks pumped Rmb7.95 trillion of new credit into the economy last year, according to the People’s Bank of China, exceeding the government’s Rmb7.5 trillion target for the year. And banking analysts say the official data understates the real amount of loans issued by the country’s generous lenders.
With plenty of cash in hand, Chinese companies are working hard on ways to spend it all, often taking them far from their core businesses.
Zong Qinghou (pictured above), chairman of soft-drink company Hangzhou Wahaha, who is also a delegate to the NPC, told reporters in Beijing that his company is considering buying mining projects overseas.
“The company has a rich capital flow with around Rmb13 billion in deposits, so the risk for investing in mining is low,” he was quoted by Chinese media as saying. Wahaha also plans to open 100 supermarkets and shopping malls on the Chinese mainland during the next two years, Zong said.
According to Xie, Chinese banks were the most aggressive share issuers last year, accounting for 30% of the Rmb1 trillion raised.
The latest bank to express its desire for more capital is China Minsheng Bank. The country’s seventh-largest lender said late last month that it plans to raise as much as $4.5 billion through the sale of shares and convertible bonds.
The bank raised $4 billion in a Hong Kong IPO in 2009, at which time it said it had no plans to raise additional funds in the next three years.
Also last month, China Everbright Bank said it plans to offer 10.5 billion H-shares in a Hong Kong IPO to replenish its capital. The lender raised Rmb18.9 billion from a Shanghai IPO just seven months ago.