China Railway's strong Shanghai debut sets momentum for Hong Kong listing

12.03.07, 6:16 AM ET
HONG KONG (Thomson Financial) - Shares of China Railway Group, Asia's largest construction contractor, surged on their debut in Shanghai Monday, signalling renewed confidence in listings by Chinese firms.
China Railway's yuan-denominated shares rose nearly 69 percent to 8.09 yuan in Shanghai against an initial public offering price of 4.80 yuan.
The company's solid debut augurs well for upcoming listings by Chinese companies in Hong Kong and Shanghai, while boosting investor hopes China Railway's opening trade in Hong Kong on Friday will be as strong.
Prior to China Railway's debut, appetite for IPOs appeared to have waned, with two Chinese companies seeing their shares fall on their recent debut in Hong Kong.
Shares in Sinotruk, China's leading heavy truck manufacturer, fell 15 percent on its first day of trading in Hong Kong last week, which was the worst debut on the city's bourse this year.
Prior to that, shares of Sinotrans Shipping, a dry bulk carrier in China, tumbled 13 percent when they were listed in Hong Kong for the first time.
Setting benchmark
'China Railway's performance today lifted investor confidence about IPOs here,' said Kenny Tang, associate director at Tung Tai Securities.
'Hopes are high China Railway won't disappoint when it debuts on Friday,' he said.
China Railway's gains in Shanghai supported market sentiment in Hong Kong as it indicated the level of enthusiasm for IPOs and equities in general.
'In the past few weeks, new shares have not performed well. China Railways may reverse that situation,' said Conita Hung, research head at Delta Asia Securities.
China Railway's IPO attracted a record 3.3 trillion yuan from investors last week, allowing the nation's largest construction contractor to raise 21.93 billion yuan in Shanghai, and another 19.2 billion Hong Kong dollars in Hong Kong.
In Hong Kong, its retail shares were oversubscribed by more than 205 times, attracting 400 billion Hong Kong dollars worth of applications.
'Judging from the Shanghai debut, the company could possibly post decent gains when it starts trading (in Hong Kong) on Friday,' said Tang.
Long-term investment
China Railway's strong fundamentals, given its leadership in the railway construction sector in the mainland, is supporting sentiment on the stock.
Beijing has budgeted 1.5 trillion yuan for its rail network over the next four years, the most in its history, as it upgrades its railway system with a plan to build a bullet train from Shanghai to Beijing.
China's rapidly-growing economy and brisk trade are boosting demand for faster and more sophisticated means of transportation, brightening prospects for companies like China Railway.
China's gross domestic product expanded more than 11 percent in the last two quarters and the International Monetary Fund is forecasting growth of 11.5 percent for the full year, up from 11 percent in 2006. Next year, growth may slow to 10 percent, it said.
China Railway is ideal for long-term investment, given the increasing number of projects the company will take on as China's economy expands, said analysts.
'China's robust economy will be the main earnings driver for China Railway. It could trade at a premium to peers given its leadership in the railway construction sector in China,' said Hung at Delta Asia.
(1 US dollar = 7.8 Hong Kong dollars, 7.4 yuan)