China Life IPO pricing expected at top end
Reuters, 12.10.03, 11:40 PM ET
By Tony Munroe and Daisy Ku
HONG KONG, Dec 11 (Reuters) - With institutional orders for shares in China Life Insurance already over 12 times subscribed, market insiders said on Thursday pricing of the year's biggest IPO should come at the high end of an indicative range.
China Life Insurance <2628.HK> and its bankers are expected to decide late on Thursday in New York (Friday in Hong Kong) on a final price and allocations in a deal worth up to US$3 billion.
Emboldened by the rally in Hong Kong-listed China stocks this year and big day-one gains by recent Chinese listings in the city, investors are scrambling to get in on IPOs.
The <.HSCE> index of Hong Kong-listed China stocks known as H shares has more than doubled this year and hit a six-year high this week, prompting some to warn of a bubble forming.
"I think it will most definitely be at the top of the range because of huge demand from institutions and retail investors," said Francis Lun, general manager at Fulbright Securities.
Sources familiar with the deal said bankers had already drummed up orders from big investors worth more than $35 billion, with a day of book-building still to come in the United States.
The five percent of IPO shares earmarked for retail buyers is expected to be well over 100 times subscribed, which would lead to the retail portion being expanded to 20 percent of the overall offer, a source said.
In Hong Kong, dozens of bank branches opened two hours early to give retail investors extra time to put in share applications ahead of a noon cut-off.
Trading in China Life Insurance Co Ltd (nyse: LFC - news - people) will begin on December 17 in New York and the following day in Hong Kong.
China Life and its bankers have set an indicative price range of HK$2.98-$3.65 per share, which includes brokerage fees for the U.S.-traded shares, or HK$2.95-$3.61 for Hong Kong shares, excluding broker fees.
"Given the good response, probably they will sell it at the high end," said Andrew To, sales director at Tai Fook Securities, who expects China Life shares to climb by between 25-50 percent on their first day.
Still, To urges investor caution. "I'm not advising clients to put any money into the stock market," he said. "H-shares have picked up something like 10 percent in the last three days -- it's crazy."
China Life's IPO is being handled by bankers China International Capital Corp (CICC), Citigroup, Credit Suisse First Boston and Deutsche Bank.
HONG KONG IPO MANIA
IPO mania in Hong Kong took off a month ago when shares in another Chinese insurer, PICC Property & Casualty <2328.HK>, leapt 50 percent on their first day of trade. PICC raised nearly US$800 million.
China's economy is growing in excess of eight percent, and domestic demand is booming as spending power expands.
"The long-term outlook is very strong for the insurance industry in China," said Stephen Ho, portfolio manager at Hansberger Global Investors, which oversees about US$4.8 billion. He expects China Life will be priced near the top of its range.
Louis Wong, research director at Phillip Securities, also expects China Life's pricing near the top of the range, but does not expect a trading debut as vigorous as PICC's.
"The size of the IPO is quite large and upside on the first day is likely to be capped within 20 percent," Wong said.
China's 11th-largest vehicle maker Great Wall Automobile Holding Co Ltd <2333.HK> priced its IPO near the top of its range in a deal that raised US$194 million and was more than 680 times subscribed -- a level not seen in Hong Kong since tycoon Li Ka-shing floated his tom.com Ltd <8001.HK> in early 2000.
Great Wall will be listed on Hong Kong's main board on Monday, and brokers said it is already trading in the grey market at about HK$17 a share, up about 28 percent from its IPO price.
Fulbright's Lun said that, given the huge size of the China Life IPO, it's shares may see a comparatively modest day one gain of 10 percent, which might discourage some investors.
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