Neway IPO to test post-reform China markets

The Rmb839 million IPO of the manufacturer of valves to the oil and gas industry is being marketed at a discount of up to 20% to its peers.

The IPO of Neway Valve, likely to be the first sizable listing from a mainland group following Beijing’s market reforms, is being marketed at a discount of up to 20% to its peers, according to a research report seen by FinanceAsia.

China Securities, the sole bookrunner on the deal, has put a value on the Suzhou-based manufacturer of valves to the oil and gas industry of Rmb10.14 billion-Rmb13.93 billion, or a 2013 price-to-equity ratio of 24.79-30.99 times.

The range was set with the high end equal to an average P/E ratio of 30.99 times for eight comparable companies listed in the domestic and overseas markets, based on the closing on December 30, 2013. The low end represents a discount of 20% to the peers’ average.

Investors are watching Neway’s IPO, with a fundraising target of Rmb839 million ($139 million), because it will most likely be the first since the China Securities Regulatory Commission (CSRC) announced reform measures in IPOs on November 30.

The deal, along with several others which are also expected to be completed in January, is a test of whether Chinese authorities can, through reforms, curb the high valuation in new shares and blunt the often blind enthusiasm towards IPOs.

In the past, valuations of many A-share IPOs were pushed up by investors but the price of some slumped soon after listing because the shares were overpriced and investors lost money. 

In its newly released rules, the CSRC agreed to be responsible only for issuers’ information disclosure rather than making judgments on their financials and valuation.

Market participants, however, have expressed concerns about whether the CSRC’s measures can lower investor expectation in valuation.

Some investors are still showing strong interest in the new shares because they believe they can make money by investing in these deals.

A fund manager with a Shenzhen private equity firm said they estimate a 20% surge during the first trading days.

“The first IPOs should be of high quality as the regulator has conducted several rounds of checks on the companies. It will be safer [than earlier] to bid,” said the fund manager.

Even though some others think the valuation is a little expensive, they believe the shares will not trade badly.

“An up to 20% discount is not a surprisingly big one. A 20-times P/E [would be] more reasonable,” said a Shenzhen-based analyst with a large fund who attended the investor meetings. “But I still bet a rise in price on debut as it’s the first one and attracts so much attention from the government and the market.”

Neway is conducting a three-day meeting with institutional investors until January 6. The company is selling not more than 120 million shares, with 70% going to institutional investors and 30% to retail. The pricing is slated for January 7 before the retail investors begin to subscribe to the shares. 

¬ Haymarket Media Limited. All rights reserved.
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