Huge housing IPO sees wild demand in China’s hot market
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Try to imagine a housing construction company in the U.S. going public today ... and attracting crazed demand from investors.
That’s what happened in Shanghai on Friday, as China State Construction Engineering Corp., the nation’s No. 1 housing contractor, launched the world’s biggest initial public stock offering in 16 months.
The company sold 12 billion shares at 4.18 yuan (61 cents) apiece, raising 50.2 billion yuan, or $7.3 billion.
Investors bid for more than 30 times the number of shares offered, according to the Shanghai Stock Exchange.
The offering will just deepen the conviction of people who say Chinese stocks are in a scary new bubble, but the market isn’t paying attention to the bears: The Shanghai composite share index rose 1.3% Friday to 3,372, the highest since early June 2008.
The index is up a stunning 85% year to date, compared with the 8.4% gain in the U.S. Standard & Poor’s 500 index.
From Bloomberg News:
State Construction is taking advantage of a stock market rally to raise money for real-estate projects as a recovery in the world’s third-largest economy boosts property prices. ‘This is the first major state-owned construction firm listed,’ said Donald Straszheim, managing principal of Straszheim Global Advisors in Los Angeles. ‘With the push by Beijing for infrastructure and growth of other [state-owned enterprises], it is not surprising that it would be a new darling of investors.’
China’s $600-billion economic-stimulus program helped boost the country’s growth in the second quarter, and investors see State Construction as a prime beneficiary of renewed interest in real estate.
From Bloomberg:
New home prices in 36 medium-sized and large Chinese cities rose 6.3% in June from a year earlier, the National Development and Reform Commission said on July 20. Nationwide property sales jumped 53% by value last month from a year earlier, and investment in real estate development increased 9.9%, the statistics bureau said July 10.
By U.S. standards, at least, State Construction is no bargain: The IPO valued the company at 51 times earnings, according to Bloomberg.
The stock will begin trading on July 29.
-- Tom Petruno