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Zhengzhou Coal Tumbles in HK Debut, Bodes Ill for PICC

Photo: China Tourism Press | Getty Images

Shares in Zhengzhou Coal Mining tumbled in their Hong Kong debut after underwriters of the $300 million offering were stuck in the rare position of holding unsold stock, underscoring poor demand that bodes ill for Chinese insurer PICC's debut on Friday.

The slump underscores the difficult environment for new listings in Hong Kong, which for years was the world's top destination for initial public offerings. State-owned PICC Group raised $3.1 billion in an offering last week after pricing the deal near the bottom of its indicative range.

New stock offerings in Hong Kong have dwindled and volumes are down by about 63 percent so far this year, according to Thomson Reuters data.

Zhengzhou Coal Mining Machinery Group, which is already listed in Shanghai, had priced the 221.1 million shares at HK$10.38 each last week, also at the bottom of its indicative range of HK$10.38 to HK$12.28.

As of 0217 GMT, the stock was trading at HK$9.53 after falling as low as $HK9.50. The benchmark Hang Seng index gained 0.8 percent.

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The company said in a securities filing on Tuesday demand from institutional and retail investors fell short of the number of shares offered in the deal, prompting three of the four underwriters to buy about $37.2 million worth of unsold shares.

Citic Securities Corporate Finance bought 22.4 million shares, while Deutsche Bank took up 710,000 shares and UBS AG another 4.65 million shares.

The shares "are not subject to lock-up and they may consider disposing of such shares after listing as they deem appropriate," Zhengzhou said about the stock bought by the three underwriters.

JPMorgan was also an underwriter on the offering.

Most of Hong Kong's equity deals in 2012 have been so-called block offerings, which target a select number of institutional investors and seek to bypass volatile demand from retail investors.

Block deals this year included a $6 billion offering of AIA Group stock in March and a $2.5 billion sale of Industrial and Commercial Bank of China shares in April.

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