BIZCHINA / Top Biz News
Market rebounds, but sentiment remains weak
By Zhang Ran (China Daily)
Updated: 2006-08-09 08:49
News of Air China reducing the amount of its domestic initial public
offering (IPO) and the securities regulator considering revising IPO
rules caused the stock market to surge yesterday after days of
sluggishness.
The benchmark Shanghai composite index yesterday rose 2.14 per cent to
close at 1,580.58 points.
Air China yesterday announced it would issue 1.639 billion A shares at
the offer price of 2.80 yuan (35 US cents) per share, cutting the offer
by 39 per cent from up to 2.7 billion shares after a weak subscription
from institutional investors.
Institutional investors had subscribed to a combined 469.5 million shares
by Monday, leaving 819.5 million shares remaining, with around 50 per
cent of the company's total IPO to be sold on-line from today.
Yesterday's market was also encouraged by a possible reform of the rules
on setting IPO prices following local media reports. The reports said
that the China Securities Regulatory Commission (CSRC) and some leading
securities houses held a conference in Northeast China's Harbin to probe
problems in the launch of new IPOs since the government lifted its
year-long ban on capital-raising in May.
IPO pricing flaws
The market's weak demand for Air China shares somehow exposed flaws in
the current IPO pricing rules set by the securities regulator.
Under the current rules, institutional investors can submit a bid for the
IPO price without any obligation to buy the shares. Institutional
investors usually offered a higher price in the first stage, but only
subscribed to a few shares later on.
Analysts noted that Air China's IPO price being too high revealed the
flaws of the pricing system.
"The company last week set the price range at between 2.75 yuan (34.4 US
cents) and 2.95 yuan (36.9 US cents) per share, but from my view the
reasonable price should be between 2.6 yuan (32.5 US cents) to 2.7 yuan
(33.8 US cents), considering the bad performance of the airline industry
and the relatively excessive supply of new IPOs in the market," said Li
Lei, an airline analyst with CITIC China Securities.
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