Shanghai Composites and second offerings

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The Shanghai Composites Index closed above 5000 the first time on August 23, Thursday. The interesting thing is, this time Chinese goverment is not as nervous as last time around (May 30), because this run up is largely drived by so-called blue chips: especially large banks where the goverment is the majority owner (ICBC, BOC,…).

For smaller investor like us, I think we should look beyond the market, and look at individual companies. By incident (what an incident), two large blue chip companies, Vanke (000002), and Citic Securities (600030). Here is the bloomberg news for Citic Securities secondary.

The Beijing-based company will offer as many as 350 million new shares at 74.91 yuan on Aug. 27, it said in a statement today. It would be China’s third-biggest stock sale this year. The shares jumped 5.9 percent to a record 94.95 yuan in Shanghai.

Citic Securities, after passing Japan’s Nomura Holdings Inc. in market value this week, is seizing on investor enthusiasm for stocks that made China the world’s best-performing market this year. Chairman Wang Dongming, who boosted first-half profit more than fivefold, plans to triple capital at the futures unit to extend his lead over local rivals…

Valuation Premium

Today’s share price gain values Citic Securities at $37 billion, higher than Nomura’s $35 billion. The stock has more than tripled this year. The firm trails only Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. in market value.

Investors pay a premium for Citic. The stock trades at about 35.8 times estimated full-year profit, according to data compiled by Bloomberg. Goldman, the world’s most profitable securities firm, has a price-earnings multiple of 8.1.

I read CS’s prospectus, and it has one catch for new investors: lowest shares number they can bid is 1000. Considering the stock is sold at 74.91 Yuan, a new investor will need to pull up almost 75,000 Yuan to bid the stock. Obviously that’s not friendly to small investors.

By contrast, Vanke, the best real estate developer in China (also the largest in many measures), let the new investors to bid as few as one share (31.53 Yuan a share).

Another interesting thing, the underwriter of Vanke’s secondary offering is CS; while CS’s underwriter is a little known investor banker called SooChow Securities Co (yes that’s SuZhou). Why SooChow instead of big names like Zhong Jin? Well, because CS and Zhong Jin are rivals, will you let your competitor look at your accounting book 🙂

The following is a bird eye view for Vanke Shanghai City Garden (courtesy of wangjianshuo).

Vanke Shanghai City Garden

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