By Bloomberg News
Sept. 21 (Bloomberg) -- Metallurgical Corporation of China Ltd. rose 27 percent on its first day of trading in Shanghai, less than half this year’s average debut gain, as rising supply and valuation concerns weighed on demand.
China Metallurgical, the construction company that helped build the “Bird’s Nest” Olympic stadium in Beijing, rose to 6.89 yuan from the 5.42 yuan offer price at the 11:30 a.m. trade break. The company raised 18.97 billion yuan ($2.8 billion) in the nation’s second-biggest initial public offering of 2009.
The state-owned contractor that builds mines and factories trailed the average 68 percent first-day advance of the 22 other IPOs after selling stock at 41.9 times last year’s earnings compared with 32 for the benchmark index. Chinese companies raised 96.1 billion yuan in local IPOs since a nine-month moratorium on sales ended in June.
“China Metallurgical’s pricing is not very attractive if you compare it with existing steel and metal companies,” Helen Lau, a Hong Kong-based analyst at OSK Securities Hong Kong Ltd., said by phone today. “Still, it’s in the range of fair pricing, only that it didn’t offer a discount.”
China’s securities regulator changed pricing guidelines for IPOs this year to make valuations reflect more closely what investors are willing to pay.
Biggest Gains
The biggest gain since the ban was lifted was for Sichuan Expressway Co., which tripled on its debut on July 27. The toll road operator raised 1.8 billion yuan in its IPO. The worst first-day performer was Foshan Saturday Shoes Co., which rose 23 percent on its first day.
The Shanghai Composite Index dropped 1.5 percent today, trimming its gain for the year to 60 percent. Shares have been boosted as the government spends 4 trillion yuan to help achieve its target of 8 percent economic growth.
China Metallurgical, which begins trading in Hong Kong on Sept. 24, expects to benefit as the government encourages steelmakers to replace old mills. China is the world’s biggest steelmaker, producing about half the world’s supply.
“We can secure continued rapid growth,” Shen Heting, China Metallurgical’s president, said Sept. 10. Consolidation of the steel industry and environmental measures will “create a huge source of contracts for overhaul orders,” Shen said.
Coastal Expansion
The government is pushing the largest steel mills to expand near the coast while closing obsolete facilities inland. Shandong Iron & Steel Group, the nation’s sixth-biggest steelmaker, will build a 20 million ton-a-year mill in coastal Rizhao city after taking over local rival Rizhao Steel Holding Group this month.
China Metallurgical is building plants for Tangshan Iron & Steel Group and Anshan Iron & Steel Group in northern Chinese provinces, according to its prospectus.
The company is also constructing mines outside China as commodity prices rally. It’s building the $1.4 billion Ramu nickel project in Papua New Guinea and the Aynak copper mine in Afghanistan.
It may record a profit of 4 billion yuan this year, it said in the prospectus, without saying what accounting standard it is using. Last year net income fell 45 percent to 3.18 billion yuan under international accounting standards.
An increase in consumer spending in the world’s most populous nation has spurred a six-month rally in Asian stock markets and encouraged a flood of initial public offerings in the region, ending a two-year slump.
The possibility that China may pull the rest of the world out of a recession and whet investor appetite for IPOs has private-equity executives such as Carlyle Group co-founder David Rubenstein and Blackstone Group LP Chairman Stephen Schwarzman lining up to sell companies they’ve been forced to keep during the credit crisis.
--Helen Yuan, Xiao Yu, Zhang Shidong. With assistance from Kyunghee Park and Cathy Chan in Hong Kong. Editors: Andrew Hobbs, Jim Poole
To contact the reporters on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Xiao Yu in Beijing on yxiao@bloomberg.net
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