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China frothy markets churn up funding opportunity

Apr 27 , 2015

China’s debts worry the world, so a recent rush towards more equity-raising by Chinese companies sounds like a good thing. If investors were more discerning, it would be.

When shares run up as rapidly as they have in Shanghai, Shenzhen and lately Hong Kong, skimming off the froth is the rational thing to do. China Eastern Airlines is one company that has spied an opportunity. It said on April 23 it would raise $2.4 billion by placing shares at a 25 percent discount to its last closing price in Shanghai. The shares promptly rose – widening the gap to 39 percent by midday on April 27. Investors’ pleasure at seeing companies raise growth funding evidently outweighs their worries about being diluted.

Others are dipping in too. Underwriting volumes for equity in mainland China increased 37 percent in March, according to Credit Suisse. Financial services companies loom large in the pipeline, including insurers Taikang and Sunshine, which are planning Hong Kong listings according to Chinese media. Regulators are also becoming more relaxed. The China Securities Regulatory Commission, which shut down initial public offerings altogether when markets looked weak, approved 25 listings last week, and has pledged to wave through two batches a month from now on.

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