Air China prices listing at higher end
(China Daily)
Updated: 2004-12-10 13:52

Air China, the country's biggest airline, raised US$1.07 billion after pricing its IPO near the top of its range, sources close to the deal said yesterday, amid strong demand for new Hong Kong listings.

With oil prices retreating from record highs and the rising popularity of air travel as China grows wealthier, fund managers expect Air China shares to rise at least 5 per cent when they start trading in Hong Kong and London on Wednesday.

"Air China should go well," said Ding Yi, a fund manager at GingerCapital Management. "The flag carrier is of a better quality than its peers."

A Hong Kong market that hit a three-and-a-half year high last week and a solid performance by other recent issues is fuelling demand for initial public offerings. Companies are rushing to raise as much as US$5 billion in Hong Kong listings this month.

That gives the carrier, which has a 35 per cent market share of China's 20 busiest domestic routes and 51.4 per cent of China's international market, higher domestic and international load factors than rivals.

Air China sold 2.805 billion shares, or 31 per cent of its enlarged equity, at HK$2.98 each, near the top end of an indicated range of HK$2.35-HK$3.10, the sources said.

The price values Air China at about 10.9 times 2005 earnings, a discount to its mainland rivals. China Eastern Airlines and China Southern Airlines trade at 11.8 times and 14.9 times forward earnings, respectively.

The State-run airline, the biggest and last of China's three large airline groups to list, attracted orders from retail investors for 83 times the shares that were on offer to them, freezing up about HK$72.19 billion (US$9.25 billion) in funds.

A trading scandal enveloping Beijing-controlled jet fuel supplier China Aviation Oil (Singapore) did not appear to put much of a dent in demand for Air China shares.

Air China was also competing for investor funds and attention with the Hong Kong Housing Authority's US$3 billion IPO of the Link real estate investment trust (REIT).

"Given buoyant market sentiment, it's not surprising to see Air China pricing at the high end of its range," said Steven Leung, director of institutional sales at UOB Kay Hian.

"But similar to recent new listings, Air China may only have an upside of 10-15 per cent on its debut as many investors are inclined to lock in short-term gains and switch into the REIT."

Due to the heavy retail subscription, the public portion was lifted to 40 per cent of the offering from 10 per cent. Institutional investors placed orders worth US$11 billion, or about 37 times the portion earmarked for them after the retail portion was expanded and excluding Cathay Pacific Airways' share of the offering.

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