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Chinese firms rush to jump on IPO bandwagon
Updated: 2009-09-15 07:57

Dozens of Chinese companies are rushing to raise billions of dollars amid fears the recovery on global markets will fizzle and foreign lenders will start demanding their money back, analysts say.

China Metallurgical and Sinopharm Group lead a list of 15 firms hoping to raise nearly $18 billion in Hong Kong and Shanghai by Oct 31, and more than 80 initial public offerings (IPOs) are in the pipeline for next year, according to analysts and media reports.

"The pick up in the economy, pick up in stock markets and plenty of liquidity - all that makes for a good concoction," said Andy Mantel, founder and chief executive of Pacific Sun Investment Management in Hong Kong.

Companies were forced to shelve their listing plans after the collapse of US investment bank Lehman Brothers in September last year sent global financial markets into freefall and prompted China's securities regulator to suspend IPOs in Shanghai and Shenzhen for nine months.

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In the first eight months of 2009, 10 firms raised $3.3 billion in IPOs in Hong Kong - about half the number and value for the same period last year, according to the Royal Bank of Scotland, citing data provider Dealogic.

Dealogic said 23 companies have made their debuts on the Shanghai and Shenzhen stock exchanges since the IPO suspension was lifted in June.

"It was virtually dead from the beginning of last year until the first half of this year," said Kathleen Wong, an attorney specializing in finance and restructuring at the Shanghai offices of law firm Allen and Overy.

Wong said the strong rebound on stock markets this year - Hong Kong has surged 45 percent and Shanghai has piled on 60 percent - as well as fears the government could reinstate IPO restrictions has spurred companies into action.

"Everyone is rushing to be the first. You don't want to be the last because you don't know when this window will shut and you don't know whether the appetite will last," Wong said.

Some companies are racing to meet deadlines by which they must launch their IPOs to avoid defaulting on pre-IPO financing from foreign institutions, Wong added.

Foreign lenders often require companies to list within two years, or repay the money.

"As a consequence of not doing an IPO by the cut-off date... they could face debt repayments and they don't necessarily have the money," Wong said.

There are concerns that the flood of IPOs, combined with fears the government will eventually curb bank lending, could put pressure on share prices. Shanghai fell 22 percent in August on fears of tighter credit.

"I'm wary when you see so many companies trying to list at the same time," Mantel said.

"We are cautious because of the... amount of money expected to be absorbed by this new stock.

"The biggest risk facing the market is liquidity and monetary policy - in the first half there was a lot of loans going into the share market but for the rest of this year, lending will be curtailed."

As competition intensifies, companies that dominate their sectors are likely to draw the most support, particularly from foreign investors seeking exposure to the recovering Chinese economy, according to Kenneth Tseung, head of equity capital markets at the Royal Bank of Scotland in Hong Kong.

"If I were a fund manager, I would like to put money in this part of the world. That's where the growth is," Tseung said.

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