China COSCO Doubles in Shanghai Debut

Shares in China COSCO Holdings more than doubled as they listed in Shanghai on Tuesday, after the shipping giant's $2 billion domestic IPO attracted a record 1.629 trillion yuan ($214 billion) in subscriptions.

The A shares in the world's fifth-biggest container ship operator opened at 15.52 yuan on the Shanghai Stock Exchange, up 83% from their initial public offer price and in line with market expectations.

The shares then climbed further in a hectic first hour of trade to as high as 17.15 yuan, slightly more than double the IPO price.

The strong debut contrasted sharply with a weak overall Shanghai market, where the main index tumbled more than 3% in morning trade because of expectations for an interest rate hike and concern about heavy new supplies of shares.

"People are attracted by China COSCO's growth story," said Zheng Weigang, analyst at Shanghai Securities. "At 18 yuan it probably wouldn't look too expensive."

The firm, 51% owned by China Ocean Shipping (Group) Co., will use the IPO proceeds to buy a majority stake in sister company COSCO Logistics and pay for 12 new ships, consolidating its position as China's top ocean shipping firm.

In addition, China COSCO is considering a possible purchase of more than 400 bulk carriers from its parent group, which could make it the owner of the world's largest dry-bulk shipping fleet.

Niu Yuming, shipping analyst at Haitong Securities, said the shares would jump to 25 yuan apiece by the end of this year if that purchase went ahead.

The price of 17.15 yuan left China COSCO's A shares at a 54% premium to the HK$11.40 last close of its Hong Kong-listed H shares. That compared to a 32% premium for its closest competitor, China Shipping Development.

China COSCO's $2 billion offer was the seventh-largest IPO on the mainland's Shanghai and Shenzhen stock exchanges. It sold 1.784 billion A shares, equivalent to 20% of its expanded share capital.

The company, which competes with global leaders such as Moeller-Maersk and Evergreen, attracted the most subscriptions from retail and institutional investors of any IPO on China's domestic stock market.

The 17.15 yuan share price valued China COSCO at 39 times analysts' forecasts for earnings per share this year of 0.443 yuan under international accounting standards, according to Reuters Research. Analysts see 2008 earnings per share rising to to 0.573 yuan.

A 2007 price-earnings ratio of 39 times is far above an average of about 24 times for major global shipping firms and 15 times for global leader A.P. Moeller-Maersk.

The domestic shares of many Chinese companies command such premiums because of strong industry growth prospects and an imbalance of demand for equity over supply inside the country.