China majors come home to tap markets

Only a few years ago, large Chinese firms in need of capital to expand their business were forced to woo investors overseas. But growing confidence in the nation’s stock markets is bringing them back at Beijing’s urging.

Their return comes as the key Shanghai Composite index has soared more than 110 percent this year after gaining about 130 percent last year, raising company hopes of strong returns on their IPOs.

“The ability of China’s stock market to raise capital has increased massively,” said Han Zhiguo, an independent economist based in Shanghai.

“China’s blue chip companies can return home and immediately raise cash — and moreover, at relatively good market prices.”

In the latest sign of the recent exuberance, Shenhua Energy rose 87 percent in Shanghai following its record US$8.9 billion initial public offering, overtaking China Construction Bank’s US$7.7 billion listing in September.

Theirs were only the latest in a slew of share sales which, over the last nine months to September, saw Chinese firms raise a record US$56.7 billion on the nation’s bourse, according to official figures.

The astounding sum beats the US$56.5 billion raised on China’s markets in the four years from 2002 to 2006, said Xinhua news agency, in a remarkable turnaround of investor confidence.

China’s total market capitalization has soared to US$3.37 trillion from a low of nearly US$400 billion in early 2005, to secure a firm place as Asia’s second-largest stock market just behind Japan.

It is a far cry from early 2005, when the mere rumor of a new corporate share sale would send prices into a tailspin on fears that the new stock would dilute investor holdings.

The Shanghai index was then languishing at near eight-year lows and it was not until Beijing enacted long-delayed reforms to divest its billions of dollars in non-tradable state-held shares that the market began to come back.

As nearly US$300 billion of that stock become public under a scheme that saw investors compensated with additional equity, investors began to plow the huge profits from China’s galloping economy into the bourses.

“Making all shares tradable changed the market completely. It enabled everything,” said Han, the economist.

But the run-up in prices has also caused worries that prompted regulators to clamp down amid fears that inexperienced investors could suddenly lose all if the bubble were to burst.

Repeatedly warning of the dangers of investing, Beijing enacted a litany of measures this year aimed at steering some liquidity away from the stock markets.

Regulators hiked the trade transaction tax in late May, a move that prompted a 17 percent fall over several days as indignant investors sold off holdings.

Other measures allowed for a plan for more domestic funds to invest overseas under a special program, while a tax on interest earned by bank accounts was also implemented.

A key move was to also actively promote Chinese majors listed on Hong Kong stock exchanges to list on home bourses, in hopes that the flood of new share issues would squeeze liquidity even more.

“The main thing the government is considering is the market’s excessive volatility,” said Zhang Pan, a Beijing-based analyst at TX Investment Consulting.

“With the A-share market continuously hitting new highs they have to increase share supply,” said Zhang.

But with more multibillion-dollar listings in the pipeline, such as PetroChina and China Mobile, the government must tread carefully, said Wang Sheng, a strategist at Haitong Securities.

“The market is already in a relatively sensitive period and if it allows a lot of big IPOs to go forward, it could result in a definite shock to the market,” he said.

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