Shares of Chinese dam builder Sinohydro Group soared nearly 40 percent on their Shanghai debut on Tuesday, triggering a temporary suspension, market sources said.
The builder of the Three Gorges Dam raised $2.1 billion in the mainland’s biggest IPO so far this year, but priced its shares at a significant discount to peers in the face of volatile equity markets.
The shares opened up 6 percent and accelerated to 6.22 yuan as of 0300 GMT, a gain of 38.2 percent from its IPO price of 4.50 yuan. The surge triggered a stock exchange rule that requires a half-hour suspension in the event of a rise of 30 percent or more.
The broader Shanghai market was down 1.4 percent at 0300 GMT.
Many analysts had expected the shares to hover around the IPO price on their first day of trading.
“It shows that the market can still digest big IPOs and it’s a good sign for other mega IPOs in the pipeline,” said Chen Yi, an investment adviser with the sales department of Xiangcai Securities in Shanghai.
The performance of Sinohydro shares also points to a slightly firmer outlook for the broader stock market. Beijing announced measures last week to bolster banking stocks and support small- and medium-sized enterprises (SMEs), helping trigger a rebound from two-and-half-year lows.
“The Sinohydro debut has to some degree benefited from the market rebound that started last week, and its relatively healthy debut would in turn give a positive signal to the market,” said Pan Hongjun, analyst at Central China Securities.
“The stock should have room to rise further due to its modest valuations as well as previous concessions to downsize its fundraising, unless the market turns bearish again.”
Depressed market
Weakness in China’s stock market, which has fallen 13 percent so far this year due to fears of an economic slowdown and the euro-zone debt crisis, has forced many Chinese companies to postpone or downsize their IPOs.
A similar story in Hong Kong, the world’s biggest IPO market for the last two years, has also pushed back some firms’ fundraising plans there.
In one of the most high-profile cases, Sany Heavy Industry Co last month postponed its plan to raise as much as $3.3 billion via a Hong Kong listing.
In mainland China, companies raised $34.9 billion from first-time share sales in the first nine months of the year, down 37 percent from a year earlier, Thomson Reuters data showed.
Sinohydro braved the weaker market, but slashed the size of its IPO by a fifth in response to weak investor demand, pricing the offer at the bottom of an indicative range and raising 13.5 billion yuan ($2.1 billion) last month, compared with an original target of up to 17.3 billion yuan.
It priced its IPO at a discount to rivals such as China Gezhouba . The 4.50 yuan IPO price valued the company at 11.5 times 2011 earnings, while China Gezhouba’s shares are trading at around 15.6 times, according to Thomson Reuters data.
Sinohydro’s debut performance may bode well for upcoming major IPOs, including those from China Communications Construction Co , Shaanxi Coal Industry and New China Life.
China Communications Construction, the country’s biggest port builder, plans to raise 20 billion yuan in a Shanghai IPO, while coal miner Shaanxi Coal also plans to raise about 17.3 billion.
Sinohydro, the builder of the Three Gorges Dam, the world’s largest hydropower project, has said it plans to use the IPO proceeds to upgrade its machinery, invest in some green energy projects and supplement working capital.
China Securities Co and Bank of China International were lead underwriters for the offer.
