 |
Baoshan Steel Listing Highlights China's Path to Reform
Shares in China's largest initial public offering, Baoshan Iron and Steel Co, begin trading Monday in a move that highlights China's attempts to create a more mature stock market but shows up the difficulties of reform.
The IPO of 1.877 billion A-shares is the largest ever carried out in Chinese mainland and marks a break from listing the biggest, highest profile Chinese companies overseas.
Baoshan shelved their plans to launch an IPO in Hong Kong amid concerns about the low price-to-earnings levels of mainland firms listed in Hong Kong (H-shares) earlier this year.
On China's domestic markets, firms like Baoshan Steel can attain much higher price-to-earnings ratios than they can abroad and are not subject to such intense scrutiny by investors.
"It's logical that some of China's largest firms are looking to raise more funds by tapping the home markets and China's large domestic savings," said Martin Ching, head of equity research at Prudential Bache Securities in Hong Kong.
Listing more high quality counters on China's domestic markets will pave the way for the country to build a more mature market over the next decade, and give Chinese investors a chance to buy decent stocks, analysts said.
Great Wall Securities analyst Liu Jian, said Baoshan's listing is good news for local investors because most A-share listings are small-cap counters that listed with the backing of provincial governments rather than relying on sparkling profit records.
Baoshan is one of the best-run steel firms in China and will have large amounts of cash on hand after the IPO to upgrade technical facilities, he pointed out.
"Now we have a large-cap blue-chip share. It is an indication that the government began making preparations for opening the mainland stock markets after the impending entry to the World Trade Organization," Liu added.
But listing domestically eases the pressure to reform, lay-off redundant staff and streamline management for companies like Baoshan Steel. The firm looks good by comparison with some other poorly-run listed companies but could hardly hold a candle to international competitors.
Last year, Baoshan acquired several small poorly-managed steel manufacturers in Shanghai.
Shanghai Number One, Number Two, Number Three, Number Five and Number Ten Steel Factories, which came under Baoshan's wings during the mergers added an extra 120,000 workers to the company's payroll, when 20,000 would have been sufficient to keep the plants operational, the report said.
"Baoshan Iron and Steel is a good steel company on the mainland but it has no technological advantage in international markets so raising funds through issuing domestic A-shares, it can strengthen its competitive edge," said Gao Daode, analyst at Haitong Securities.
But the juiciest pieces of Chinese equity, such as fast-growing telecoms stocks like China Mobile and China Unicom have until now set their sights on listing overseas.
Prudential Bache's Ching points out that China Mobile and Unicom have only listed a fraction of their shares abroad leaving room for domestic listings where money is easier to raise.
"Chinese investors have a right to own a piece of some of the most profitable companies in China, and shares will be made available, over the coming 24 months," he predicts.
In This Section
|