China IPOs: What’s Coming Down the Pipeline

Posted November 21, 2007

“The other Big Thing barreling down the pipeline is China Mobile (CHL: NYSE). The company’s ADR has already more than doubled its share price in 2007. Now it is planning one of the largest IPOs in the history of China’s mainland exchanges. And given the recent track record of Chinese IPOs, that’s saying something.” — J. Christoph Amberger

by J. Christoph Amberger, Today’sFinancialNews.com

Baltimore — (TFN): China is gearing up for stock market fireworks in the next couple of weeks. Officials have been indicating that they may allow large multinationals to start trading on the Shanghai Stock Exchange. This would give the likes of Hong Kong Shanghai Bank or even Coca Cola a chance to tap into the apparently limitless cash dispenser provided by China’s retail investor and part-time equities punter.

But that is still months away. After Alibaba.com’s mammoth IPO in Hong Kong and PetroChina’s Shanghai blockbuster two weeks ago, the next big fish about be served up to investors is China Railway Engineering Group, the largest Chinese construction company, which is expected to raise as much as $4 billion in Shanghai and Hong Kong share sales within the next couple of weeks.

The coming China mega-IPOs

This Beijing-based company is expected to sell up to a combined 40% stake in the two separate offerings scheduled to take place a few days apart before public trading begins in December.

The other Big Thing barreling down the pipeline is China Mobile (CHL: NYSE). The company’s ADR has already more than doubled its share price in 2007. Now it is planning one of the largest IPOs in the history of China’s mainland exchanges. And given the recent track record of Chinese IPOs, that’s saying something. Estimates are as high as $6 billion for the IPO, which would secure China Mobile’s place as the largest cellphone company in the world, both by customer base and market cap.

Opening Shanghai to external IPOs

But China Mobile is a Hong Kong company. And under current regulations, the company isn’t eligible to enter China’s mainland markets. As part of China’s economic coddling, the country’s stock exchanges were originally restricted to companies incorporated on the mainland. But businesses based in Hong Kong, like China Mobile, can carry on their sales in the country without any major restrictions.

As a result, many Hong Kong companies make all of their money from Chinese customers, but are only publicly listed outside the country.

While these companies profit from the Chinese public, Chinese investors can’t profit from the companies. That’s a lot of earnings flowing out of China into the hands of Hong Kong and American investors.

The regulatory change necessary for this IPO was supposed to be in effect by the third quarter of 2007. China Mobile planned its original IPO accordingly. But now the company is looking to early next year for the new rules and its mainland IPO.

After hearing from our friends over at EverBank that we had to wait 20 days to buy shares of the Alibaba IPO in Hong Kong, one of our subscribers contacted us and said he was told it was 40 days.

Naturally, I sent the question back to EverBank, who got back to me today with the news that, oh, yeah, it’s 40 days, not 20. U.S. investors will be able to buy Alibaba’s Hong Kong shares (under the symbol 1688) starting December 17.

If you’re new to the game (or the TFN news feed), Alibaba.com is the largest business-to-business Web site in China. It provides a database of Chinese factories for American companies looking to outsource. And it has been so successful that it attracted the attention of Yahoo, which bought a 40% stake in the company in 2005.

Alibaba.com IPOed on the Hong Kong Stock Exchange two weeks ago. Its shares tripled on its first trading day. And the company raised $1.5 billion, making it the largest technology IPO since Google went public in 2004.

Thanks to the nanny state…

But, unfortunately, American investors aren’t allowed to buy Alibaba’s Hong Kong stock for 40 calendar days after its IPO. We have yet to come up with any valid reasoning behind the SEC regulation, except that it gives U.S. “distributors” (which could mean either market makers or brokers) an edge when it comes to buying in foreign markets.

Either way, regular investors in the States will have to wait until December 17 to get our hands on the freshly minted Hong Kong stock.

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