Early gains in Guotai Junan lag those of earlier IPOs

July 02, 2015 08:07
Guotai Junan Securities made the weakest four-day gain among China's IPOs this year. Photo: Xinhua

A 77 percent return in four days would leave most investors in an initial share sale ecstatic.

However, that four-day advance in Guotai Junan Securities Co., which completed China’s biggest initial public offering in five years last month, was the worst start among 190 IPOs on mainland bourses this year, Bloomberg reported.

All the others recorded a gain at or near the 92 percent maximum allowed, Bloomberg data shows.

While regulatory pressure on companies to keep their IPO prices low has led to instant gains once the shares start trading, returns are coming under pressure from a flood of new equity and a tumble in the Shanghai Composite Index.

The Bloomberg China IPO Index has dropped 25 percent since the end of May, even as authorities considered a suspension of new listings to ease supply concerns.

“Insanity has a limit,” said Francis Lun, chief executive officer at Geo Securities Ltd. in Hong Kong.

“If Guotai keeps rising like a penny stock, it will soon become the biggest company in the world, bigger than Apple.”

China’s second-largest brokerage rose 1.4 percent to 34.82 yuan in Shanghai on Wednesday, its first day without a limit-up move.

China restricts daily gains to 44 percent for IPO debuts and 10 percent thereafter.

Guotai Junan raised the equivalent of US$4.9 billion from investors, the biggest IPO in China’s domestic market since 2010.

The company's US$43 billion market value is in line with that of Deutsche Bank AG.

Returns on IPOs this year have started shrinking for the first time in six months.

On June 30, the prices of stocks that began trading in China this year were 393 percent higher than their IPO prices, down from 603 percent at the end of May.

They’re valued at an average 71 times earnings, versus 96 a month earlier.

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