China XD Electric Co, the country's largest maker of electricity transmission and distribution equipment, plans to raise as much as 10.27 billion yuan ($1.50 billion) in the first major initial public offering (IPO) this year.
XD Electric, which hopes to sell up to 1.3 billion shares in its Shanghai IPO, said it had fixed the price range for the share offer at 7.1 to 7.9 yuan. That differs from the 7.4 yuan-9.6 yuan range forecast by its underwriter, China International Capital Corp (CICC).
In a statement to the Shanghai Stock Exchange yesterday, the company said the pricing would give XD Electric a maximum price-earnings ratio of 34 times its 2008 net profit per share.
That would give XD Electric's offer a relatively low valuation, as China's lackluster stock market has seen weakened IPO share demand and less frantic debuts of new listings. This may force Chinese companies to rethink expensive IPO prices.
New IPOs have traditionally attracted huge speculative interest in the nation's stock market. Chinese companies typically set their price earnings ratio high, often 50 times their historical earnings.
Investor interest in new IPOs has been dampened by government efforts to cool down the market, and accelerate approvals of new share offerings to counter a potential stock market bubble.
Firms that launched IPOs late last year - such as China Merchant Securities Co and China CNR Corp - have had to watch their shares drop below the IPO price.
Based in Xi'an, Shaanxi province, XD Electric has previously said it needed 7.72 billion yuan in IPO proceeds to fund expansion plans and technical upgrades.
The company took subscriptions from institutions yesterday and will open to retail investors today. It plans to sell 40 percent of the IPO to institutional investors and the rest to retail investors, according to the firm.
XD Electric's move to set the IPO price range may not be good news for Chinese firms looking to go public this year.
According to figures from PricewaterhouseCoopers, domestic IPOs may raise more than 320 billion yuan this year, up 73 percent over 2009 figures.
Dozens of other firms, including China First Heavy Industries Co and Huatai Securities, have won regulatory approval and are now on the IPO waiting list. Efforts by the government to stimulate the economy last year resulted in a huge influx of hot money into the domestic stock market. Last year's sluggish export demand has also encouraged some domestic firms to reduce production capacity and shift more cash into real estate and stocks.
Since early September 2009, the Shanghai Composite Index jumped 27 percent in less than three months.
