Tuesday, October 23, 2007

Rising Tide: Chinese IPOs

Investors still have a strong appetite Chinese IPOs. Another slew of Chinese IPOs are arriving on U.S. exchanges this week. Longtop Financial Technologies Ltd. and jewelry maker Fuqi International Inc. will begin trading this week. In other recent news, Chinese games developer Giant Interactive selected the New York Stock Exchange for its $801m offering, the largest initial public offering in the U.S. by a Chinese company since 1999.

At the same time the government of China is preparing large state enterprises for listing. While earlier there has been speculation over the offering of large state firms on exchanges, recent news last week makes the plans more concrete. Beijing is preparing thirty “national champions” controlled by the central government for initial public offerings, most likely before 2010. A list of 30 candidates was revealed last Tuesday in Chinese newspapers. It includes leading companies in several strategically important industries such as metals processing (China Minmetals), nuclear energy (China National Nuclear Corp), aviation (China National Aviation Holding Company), and power equipment (Dongfang Electric).

It is not clear what the division of ownership will be among the mainland exchanges, Hong Kong, and foreign markets; nor what ownership privileges will be assigned to classes of shares.

This is coupled with the news that PetroChina, China's biggest oil and gas producer, is settling on pricing for an initial public offering in Shanghai that is expected to raise nearly $10B. There is an increasing trend among Chinese companies that are already listed in foreign markets and Hong Kong to return to domestic exchanges for further sizable offerings. This demonstrates the strength and maturity of the mainland Chinese markets.

With an economy that is still growing at over 10% per year, it is not clear how long the IPO trend will continue, or if fears about a Chinese investment bubble are properly founded.

China Readies Large State Enterprises For Listing

PetroChina Begins Consultations on IPO

IPO Spotlight: Chinese Companies Heat Up

NYSE wins $800m Chinese IPO