Zhengzhou Coal Mining Machinery Group Co. is seeking regulatory approval to sell shares in Hong Kong at more than the standard 10 percent discount to its Shanghai stock, said two people with knowledge of the matter.
Zhengzhou Coal, China’s largest maker of hydraulic roof supports used in mining, has asked the China Securities Regulatory Commission for permission to offer shares as much as 15 percent below the Shanghai price, the people said, asking not to be identified as the information is private. Chinese regulators typically require companies to sell stock overseas at no more than a 10 percent discount to their local price.
The company and its bankers concluded after meetings with potential investors in Hong Kong that a bigger discount was needed to lure buyers, one of the people said. China’s economic slowdown and Europe’s debt crisis have weakened demand for new shares in Hong Kong, and first-time offerings in the city are on track for their slowest year since 2003.
“Even a huge discount may not be enough to attract investors who have lost confidence in the market,” said Michiya Tomita, a Hong Kong-based fund manager at Mitsubishi UFJ Asset Management Co., which oversees $70 billion. A big discount does not necessarily mean cheap valuation as the Shanghai market is closed to most overseas investors, he said.
A Hong Kong-based outside spokeswoman for Zhengzhou Coal declined to comment on the share sale plan yesterday.
Most China-traded companies that sold additional stock in Hong Kong since 1999 have done so at less than a 10 percent discount to their existing shares, data compiled by Bloomberg show. Companies have raised $5.7 billion from first-time offerings in Hong Kong this year, the least for similar periods since 2003, the data show.
In April, Haitong Securities Co. sold shares at a 10 percent discount to its volume-weighted average price in Shanghai over the 20 trading days before the Hong Kong offering, data compiled by Bloomberg show. The company raised $1.7 billion.
Inner Mongolia Yitai Coal Co. priced its $900 million Hong Kong offering in July at a level close to the 20-day average of its Shanghai shares.
Zhengzhou Coal may postpone its share sale to November or December as it awaits regulators’ approval, said the people. The company had planned to start trading in Hong Kong in early October, people with knowledge of the matter said last week.
Zhengzhou Coal, based in Zhengzhou city, has fallen 18 percent this year in Shanghai, valuing it at 14.3 billion yuan ($2.3 billion) as of yesterday’s close. The Hong Kong offering may account for about 20 percent of the company’s increased capital, the people said. Zhengzhou Coal shares rose 0.3 percent today.
China’s benchmark Shanghai Composite Index has lost 6.5 percent this year and fell below 2,000 on Sept. 26, a level last seen in early 2009, as Chinese industrial companies’ profits dropped for a fifth month in August. The index jumped the most in three weeks yesterday on speculation the government will announce measures to bolster the stock market.
Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG are managing the offering for Zhengzhou Coal, the people said.