Air China has had to heavily cut the size ($) of its IPO on the Shanghai exchange because of lacklustre demand, says the Financial Times.
Such a high-profile flop so soon after re-opening the IPO market could oblige China's regulator to push back the launch dates for the flood of other domestic IPO candidates waiting on the apron -- although a spokesman says it will not.
Most interest centres on China Mobile, the world's largest mobile phone company by subscribers. Like Air China, its shares are also quoted on the Hong Kong exchange, where they recently gained on talk it will soon issue shares on the mainland.
China Mobile is waiting for regulatory approval for a planned domestic listing, so the cold shower that investors have poured on Air China's prospects could not have come at a worse time.
According to the FT, Air China has cut the number of shares to be sold by 39% and the share price has also been reduced to 2.8 yuan, towards the lower end of the expected range. The IPO will raise 4.6bn yuan.
China has only recently re-opened its domestic IPO market after a year-long ban. Bank of China was the first big name to test the waters at the end of May and its IPO was a great success despite widespread concerns about the quality of lending in China's banking sector -- see earlier EngagingChina story.
However, this week's muted reception for Air China suggests investors are now suffering from indigestion after a rush of China flotations in the past couple of months. In addition, airlines are hardly flavour of the month because of soaring fuel costs.
The flood of domestic flotations is the most visible aspect of the liberalisation of China's domestic equities market. In particular, the regulator wants Chinese companies that have a Hong Kong listing -- so-called Red Chips -- to also list on the mainland.
Institutional investors have traditionally favoured the HK-listed shares of Chinese companies -- so-called "H" shares -- over shares quoted on China's domestic markets. So, to attract interest for its domestic IPO, Bank of China priced the new Shanghai-listed "A" shares at a 10% discount to the H shares.
Air China tried to offer its A shares at a smaller discount, but has ultimately had to accept a similar level.
The A-share markets on Shanghai and Shenzhen stock exchanges are open to domestic investors and the growing number of qualified foreign institutional investors -- see this EngagingChina story for more on QFII.
To add to the confusion, China's domestic markets also offer B shares, which are denominated in US dollars and were originally the only share class available to foreign investors. The B shares have become marginalised in recent years and the A-share and B-share markets may merge, according to the China Daily.
Air China originally hoped to raise 8bn yuan from its domestic A-share listing to finance the purchase of 45 aircraft and its airport expansion project in Beijing.
($) subscription required
