China's Sinotrans Shipping Falls in HK Debut
Shares in Sinotrans Shipping, China's No. 3 dry bulk shipper, fell as much as 5 percent in a disappointing market debut on Friday amid retreating freight rates and as caution prevailed in a volatile market.
The debut came a day after shares in money manager Value Partners Group closed flat on their first day of trade, weighed down by growing worries about the prospects for global financial markets.
Shares in Sinotrans, which raised US$1.47 billion in an initial public offering, fell to as low as HK$7.77, down from an IPO price of HK$8.18 each, which was at the top of a range.
"It's a large-cap stock. You need everyone to support it, and right now, there's hesitation by institutions because the (market) trend is downward," said Steve Cheng, associate director at Shenyin Wanguo.
The benchmark Hang Seng Index has fallen 17 percent from an all-time high hit at the end of October. It has dropped 3.7 percent in the past week, but was up 2 percent on Friday as investors picked up battered shares.
The index of Chinese companies listed in Hong Kong has slid 24 percent this month, although it was up 0.8 percent on Friday morning.
The U.S. subprime mortgage crisis has triggered a global credit crunch, spurred the U.S. Federal Reserve to cut interest rates and rattled financial markets.
The turmoil, and steps by Beijing to cool China's economy, have weighed on the debuts of some other recent Hong Kong IPOs. While e-commerce firm Alibaba.com nearly tripled on Nov. 6, Zhong An Real Estate closed flat on its first day of trade despite strong debuts by rival
Other bulk cargo shipping firms also bucked the broad market recovery on Friday, as the Baltic Exchange's chief dry sea freight index fell for seven consecutive days from a peak hit last Tuesday.
China COSCO slid 6.3 percent to HK$25.50, China Shipping Development lost 4.5 percent to HK$17.28 and Pacific Basin Shipping dived 7.3 percent to HK$13.16.
Based on its current stock price, Sinotrans has a market value of US$4.1 billion, with a price-to-earnings multiple of 13.6 times the syndicate 2008 earnings forecast.
By comparison, China COSCO, which is buying its parent's dry-bulk shipping fleet for $4.6 billion, trades at 13.5 times 2008 forecast earnings forecast.
China Shipping Development and Pacific Basin trade at 11 times and 7 times, respectively, 2008 forecast earnings.
Sinotrans' IPO sponsors, UBS and BOC International, on average expect the company to boost net profit 15 percent to $137 million in 2007 before more than doubling it to $298.5 million in 2008, citing strong upward momentum for the Baltic Dry Index.
The index, which gauges the strength of the global seaborne dry commodities trade, hit a record high on Nov. 13 amid strong demand for raw materials in Asia and has more than tripled this year despite a recent retreat.
China's surging economic growth has boosted demand for bulk cargo ships and attracted keen interest in shipping stocks.
The retail portion of Sinotrans' offering was 251 times subscribed.