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China resumed new issues in the hard-currency B share market Wednesday, a move regarded as a major boost to the long-overlooked counter.
Shanghai-listed Shanggong Co Ltd, a leading sewing-machine maker in China, published its prospectus in major financial newspapers in which it said it was issuing up to 100 million B shares, the first in three years.
The shares were sold only to 14 designated overseas institutions, including Germany's FAG Kugelfischer AG, Mesabi Assets Ltd and others, the prospectus said.
The issue is expected to raise approximately US$50 million to facilitate the company's purchase of shares in a Kugelfischer subsidiary, Durkopp Adler AG (DA).
Shanggong's issue, which has been talked about for some time, is regarded as a sign of more new B share offerings, which would give investors more choices.
New issues in the B share market stopped in October 2000; and with only about 100 listed companies and US$11 billion in market capitalization, the counter is hardly comparable to the Renminbi-denominated A share market, which has been opened to foreign investors through the introduction of the qualified foreign institutional investor (QFII) scheme since the end of last year.
The long-term plan for the B share market, which was originally designed for foreign investors but then lost its attraction, is to merge with the A share market. So investors have shown little interest in the sector, which made trade even slimmer, analysts said.
However, insiders said the merger would still take a long time because of the non-convertibility of renminbi under the capital account.
So the authorities would still have to think of some ways to stimulate interest in B shares, which are traded at half the price of A shares issued by the same company.
"Some of the B share companies that have shown good corporate performance, especially those with also A shares or H shares, still have good investment value," an analyst with China Securities Co said.
Some B share companies, especially those listed in Shenzhen, have reported good interim and third-quarter results, which triggered several brief rallies in the B share market over the past few months.
However, some noted that Shanggong's case may be an exception.
According to its prospectus, Shanggong plans to buy 81.1 percent of shares in DA, a world-leading industrial-sewing-machine manufacturer with the acquisition done in several phrases.
The transaction is expected to sharpen Shanggong's technological edge and help expand exports.
Sources with the company said it aims to realize net profits of 26 million yuan (US$3.2 million) in 2003, which is expected to double in 2004 and triple in 2005.
Shanggong saw turnover shrink by 50 percent last year and did not give any profit forecast for this year. DA also reported losses last year and this year.
"There are still uncertainties as to whether DA can turn around quickly after the acquisition, so the expectation of better performance of both companies also involves some risks," Shanggong said in the prospectus.
(China Daily November 6, 2003)
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