UPDATE 2-China Construction Bank poised for subdued debut
Tue Oct 25, 2005 05:15 AM ET
By Daisy Ku
HONG KONG, Oct 25 (Reuters) - Shares in China Construction Bank traded just 1 percent above their IPO price in the grey market, signaling the $8 billion listing is set for a subdued market debut on Thursday.
The sheer size of the deal -- the world's largest IPO in four years -- is working against a big early gain for CCB, analysts said. Weak equities markets and lighter-than-expected retail demand also are expected to conspire against the state run bank.
"The market is quite weak at the moment, and since CCB priced its IPO at the top of the range, we may see some selling pressure on Thursday," said Y.K. Chan, strategist at Phillip Securities.
Electronic trading network Instinet said 100 million CCB shares had changed hands on Tuesday at between HK$2.35 -- the deal's IPO price--and HK$2.375 each.
On Friday, 10 million shares traded at HK$2.38 to HK$2.40 each; on Monday, two million CCB shares traded at between HK$2.35 and HK$2.38, Instinet said.
Smaller rival Bank of Communications (BoCom) (3328.HK) fell 1.52 percent to close at HK$3.25 on Tuesday.
Fund managers said they expect CCB shares to rise by only 1 to 2 percent -- if at all -- on their first trading day, depending on market conditions.
CCB last week priced its shares near the high end of an indicated range of HK$1.90-$2.40, after it raised that range by about 6 percent during its marketing roadshow.
Market sources said some big institutional buyers received as much as 80 percent of their orders and some hedge funds got about 50 percent, which could cap demand in the secondary market.
In popular listings, investors often receive just a tiny fraction of the shares they sought, leading to pent-up demand that fuels a first-day rally, or "pop."
CCB originally set aside 5 percent of its IPO shares for retail buyers.
While CCB attracted orders for 42 times the number of retail shares on offer and lifted the retail portion of the deal to 7.5 percent, many brokers had expected subscription levels of 50-60 times.
The Hang Seng Index lost about 5 percent between Sept. 26, when CCB opened its order book, and Monday, although the benchmark index was up 0.16 percent or 22.5 points to close at 14,424.88 points on Tuesday.
Worries about bird flu have also cast a cloud over the market. China on Tuesday reported a fresh outbreak of the disease among geese in a village in the eastern province of Anhui.
"With worries about bird flu, and with so many investors already with their hands on CCB shares -- priced at the high end -- the counter could even dip below water," said a fund manager who bought CCB shares.
China's third-largest bank sold 26.486 billion shares, or 12 percent of its enlarged share capital in the biggest ever IPO from China and the first by one of its "big four" state banks.
"CCB shares were priced a bit expensive, but there should be support as BoCom shares, which trade a a premium, have risen 30 percent since their listing," said Clive Zhang, a fund manager at Partners Capital Asset Management.
He added that China's faster-than-expected growth and CCB's planned 35 percent to 45 percent dividend payout should attract long term investors.
CCB shares were priced at 1.96 times book value, or 13 times 2005 earnings of HK$0.18 each. By comparison BoCom trades at about 2.2 times book, or 19.2 times forward earnings.