China Pacific Shares Up In Their Debut

HONG KONG/SHANGHAI (Reuters) – Shares of China Pacific Insurance (Group) Co (2601.HK), the country’s third-largest life insurer, rose 1 percent on their debut in Hong Kong after the Carlyle Group-backed company raised $3.1 billion in the world’s seventh-largest IPO this year.

The listing came just after Shanghai produced another huge IPO of its own, with China CNR Corp (601299.SS), one of the country’s two big train makers, raising 13.9 billion yuan ($2.04 billion) after pricing its A-share offering at the top of an indicated range. The IPO is China’s fourth-largest this year.

The two offerings are likely to be the last of the major IPOs to hit the Hong Kong and Shanghai stock exchanges this year, after six months of heavy, globe-leading activity.

A small Hong Kong listing, Huayu Expressway Group Ltd (1823.HK), closed at HK$1.29, just above its HK$1.28 IPO price.

China Pacific Insurance is not only a big IPO for Hong Kong, but marks one of The Carlyle Group’s most successful investments. After putting around $800 million into the Chinese insurer for a roughly 17 percent stake, the Washington D.C.-based private equity firm could see that stake rise to around $4.8 billion on paper.

“Its Shanghai A-shares have been trading poorly in the past month, so its Hong Kong H-shares should match that performance,” said Jackson Wong, investment manager at Tanrich Securities.

China Pacific Insurance’s offer price was about a 6 percent premium to its Shanghai-listed shares. [ID:nTOE5BL080] The first day trading was in line with predictions after the stock had fallen 0.7 percent in the pre-trading grey market on Tuesday.

Shares of China Pacific (601601.SS) ended at HK$28.3, compared with the IPO price of HK$28, which was slightly below the middle of its indicative range. The company is also listed in Shanghai.

China’s life insurers have traded at a premium to their developed market peers, because of high growth expectations.

China Pacific Insurance’s offer price represents a multiple of about 1.8 times forecast 2010 embedded value, compared with China Life Insurance’s (2628.HK) (LFC.N) (601628.SS) 2.9 times and Ping An Insurance’s (2318.HK) (601318.SS) 3.7 times, according to a UBS research report. This is at a premium to European peers’ average 1.2 times price to embedded value.

Asia is home to just a handful of big listed insurers, led by China Life and Ping An — the world’s two most valuable life insurers — and Taiwan’s Cathay Financial Holdings (2882.TW).

China International Capital Corp (CICC), Credit Suisse (CSGN.VX), Goldman Sachs (GS.N) and UBS (UBSN.VX) were handling the deal.

IPO TRAIN

While China is spending heavily on infrastructure for its booming economy, railway investment has generally lagged economic growth this decade.

Beijing has budgeted 1.2 trillion yuan for rail investment for 2006-10, more than four times the figure for the previous five years.

CNR competes with domestic train maker China South Locomotive & Rolling Stock Corp (601766.SS) (1766.HK) and foreign manufacturers such as France’s Alstom (ALSO.PA) and Canada’s Bombardier Inc (BBDb.TO).

The company aims to supply trains for the world’s fastest-growing major railway market, hiring China International Capital Corp (CICC), Huatai Securities and Huarong Securities to underwrite the IPO.

The final IPO price values CNR at 49 times its 2008 earnings on a fully diluted basis, about the same as rival China South Locomotive’s historical price earnings ratio, but much higher than the overall Shanghai market’s .SSEC PE multiple of 27. (US$1=HK$7.75) ($1=6.828 Yuan)

 

By Kennix Chim and Lu Jianxin
(Editing by Michael Flaherty and Ian Geoghegan)