Chinese IPOs Lock Up $91 Billion as Deals Divert Funds

China’s first initial public offerings in four months will start trading tomorrow after bids for six companies locked up 563.9 billion yuan ($91 billion), fueling concern the deals may divert funds from existing shares.

Shandong Longda Meat Foodstuff Co. (002726), Wuxi Xuelang Environmental Technology Co. and Feitian Technologies Co. will start trading in Shenzhen tomorrow after the stocks were each oversubscribed by at least 120 times in online bidding, according to statements to the Shenzhen Stock Exchange.

Speculation that Chinese investors will pull money from the stock market to invest in new offerings is weighing on the Shanghai Composite Index (SHCOMP), which has dropped 4.3 percent this year for the biggest retreat among 46 emerging and developed countries. Chinese IPOs have jumped an average 43 percent in their trading debuts this year, the most worldwide, as the securities regulator pressured companies to price offerings at below-average valuations to protect small investors.

“The stock market will continue to bleed as investors remain interested in the new IPOs,” said Zeng Xianzhao, an analyst at Everbright Securities Co. “This could continue for another month before they return to the secondary market.”

Ten companies have started the process to list their shares since June 10, the China Securities Regulatory Commission said in a statement on its microblog yesterday. The average price-to-earnings ratio of the companies is 17.76, or about 39 percent lower than the average of 48 IPOs at the start of this year, the CSRC said.

Stocks Drop

The Shanghai Composite slid 0.5 percent to 2,024.84 at 9:44 a.m. local time, versus a 0.3 percent drop in the MSCI Emerging Markets Index.

The Chinese regulator halted IPO sales for at least a year through November to strengthen the quality of listed businesses and prevent investors from colluding to manipulate prices. Exchanges will suspend trading in IPO shares for 30 minutes on their debut if moves exceed 10 percent from opening prices, and will cap gains or losses at 20 percent.

More than 600 companies have submitted IPO applications and over 400 have published draft prospectuses, the CSRC said in a statement last month. The securities watchdog plans to allow about 100 IPOs from June through the end of the year and the stock sales will be evenly spread over time, CSRC Chairman Xiao Gang said in a May 19 statement.

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net; Michael Patterson at mpatterson10@bloomberg.net Michael Patterson, Phani Varahabhotla

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