China’s equity markets continue to produce big initial public offerings, despite a weak secondary market and an overheated primary market. Phoenix Publishing & Media Corp, a leading publishing group in China, plans to raise up to Rmb4.48 billion ($704 million) through an IPO in Shanghai to fund expansion.
The Jiangsu-based group is yet another issuer testing investor appetite with a high valuation. It is offering 509 million new shares at between Rmb8 and Rmb8.8 each, which suggests the company could raise Rmb4 billion to Rmb4.48 billion, valuing it at 57 times to 63 times earnings.
The price-to-earnings ratio is much higher than the Shanghai exchange’s average valuation of 14.6 times, though the Shanghai Composite Index has fallen 15% year-to-date, bringing down valuations with it.
Even so, the early signs are good for Phoenix Publishing. The offering received a strong initial response, with the institutional tranche of the deal 12.6 times covered, according to a statement to the stock exchange in Shanghai.
The shares on offer are split equally between the institutional and retail offers. A total of 174 institutional investors placed orders for 3.22 billion shares, or 6.3 times the total offering. The Shanghai public offering of the deal will start today. CICC is managing the deal.
Phoenix is one of the largest publishing groups in China, and had a net profit of Rmb660 million from Rmb5.4 billion in sales in 2010, according to an IPO prospectus.
Analysts say there will be more deals rushing into the market before the end of the year. New China Life Insurance is the next in line with a roughly $3 billion dual listing in Shanghai and Hong Kong, while China Communications Construction and Shaanxi Coal Industry are reported to be kicking off IPOs worth billions of dollars during the coming months.
Guo Shuqing, the newly appointed chairman of the China Securities Regulatory Commission (CSRC), is reported to have reduced approvals for new IPOs and told listed companies to increase their dividends to shareholders.
Zhou Zhengqin, former CSRC chairman, has warned that the A-share market has failed to let investors share in listed companies’ profits. The Shanghai index has crawled up just 18% during the past 10 years, compared to gains of more than 1,200% in Russia and more than 300% in India during the same period, according to Zhou.
During the first 10 months this year, there was at least one IPO on every trading day. After more than 20 months of negative real interest rates and a recent rally in Shanghai stocks, Chinese investors are shifting their savings from banks to the stock market, analysts say. Household deposits fell more than Rmb700 billion in October, according to central bank data.