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English>>China Business

Speculation said to fuel Shibao IPO

By Wang Fei’er  (Global Times)

08:41, November 05, 2012

Shares of Zhejiang Shibao Co Ltd (Shibao), a domestic auto parts manufacturer, jumped by 626.74 percent Friday when the company made its public trading debut on the Shenzhen Stock Exchange, the largest daily advance by a company in its first day of public trading on mainland bourses in over a decade and another sign of the rampant speculation which experts say has become a dangerous feature of the domestic equity market.

The company's shares closed at 18.75 yuan ($3.01) Friday, up from their initial offering price of 2.58 yuan. Trading of the company's shares was temporarily suspended within the first minute of the morning after triggering a turnover circuit breaker. Rapid gains resulted in two additional short-term trading halts before the end of the session.

Shibao is not the only company that has seen its share price increase by a triple-digit rate upon arrival in the mainland's secondary market. In October, shares of China Molybdenum Co Ltd more than tripled when they launched on the Shanghai Stock Exchange.

Many of the mainland's retail investors were attracted to Shibao after the company scaled back its fundraising plan from 510 million yuan to 38.7 million yuan in a bid to receive approval for its initial public offering (IPO) from China's securities regulator, Cai Junyi, chief investment consultant from Shanghai Securities, told the Global Times.

After paring down its goal, Shibao's IPO became an easy target for speculators, many of whom are inclined to invest in the low-priced shares in the hopes that they would shoot up in value on their first day of trading, Cai explained, adding that the hype surrounding the listing was well out of proportion to Shibao's recent business performance.

The company's revenue dropped by 18.3 percent year-on-year in the first half, according to the financial statement it filed to the exchange. The worsening figures though did not discourage investors from speculating on the company in its first day of trading, said Cai.

As first-day price jumps become more common, retail investors, who form the bulk of the mainland's investor pool, can expect to suffer huge losses when the prices of their hyped up equities coming crashing down, Zhang Qi, an analyst at Zero2IPO, a Beijing-based consulting firm, told the Global Times.

Retail investors, who purchased fewer than 10,000 shares each, snapped up 94.59 percent of the shares Shibao floated in its mainland IPO, according to data from the Shenzhen Stock Exchange.

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