Newbies crowd shy veterans out of capital markets

Now that the Chinese mainland markets are treading their way up — the Shanghai Composite climbed 4.2 per cent in January — there is a sense of ‘smiley' in the bourse air. China's tight monetary policies throughout last year and cost increases have eaten into corporate profits and a more relaxed monetary policy regime would be more than welcome.

However, the hangover from last year's pessimism will persist for a bit, even as some newbies make it to the Exchange. A scan of China's IPO (initial public offering) calendar provides a fascinating glimpse into this swiftly changing dynamics. The trend of media companies dipping into the capital market pool is in stark contrast to the sinewy real estate sector shying away.

Encouraged by the government's decision to strengthen China's ‘soft power', new as well as traditional media companies are coming into their own. Last December, the country's leading internet protocol television (IPTV) operator, BesTV New Media, launched an IPO on the Shanghai Stock Exchange, making it possibly the first new-media stock in China.

IPTV service

IPTV is a system through which television services are delivered through the internet instead of traditional channels. The company's revenue and net profit growth rate both exceeded 50 per cent over the last three years, while it has invested heavily in new-media technology and intellectual property rights.

Close on the heels is a proposed IPO by People's Daily's online news portal, which is now under the scrutiny of the China Securities Regulatory Commission. If the offering is approved, the portal, People.cn Co, is likely to become the first publicly listed state-level news medium.

The company plans to raise about $84 million (Dh308 million) on the Shanghai Stock Exchange, but it is not the only online state-owned media portal that plans to pursue an IPO. As many as ten similar websites plan to be listed in Shanghai, but this may not happen in 2012.

Investor confidence

Smaller deals, instead of blockbuster IPOs, will dominate the scene. Analysts expect the total size of the fund-raising to remain roughly the same in 2012 as investor confidence is yet to bounce back. The A-share markets will see around 300 IPOs in 2012. Last year was something of a dampener with the IPO market receiving 282 listings and raising $43.7 billion, sharply down from 2010. Despite this, China remained the biggest IPO market and is likely to retain the title this year too.

Interestingly, for the first time, the securities regulator published a full list of Chinese companies that have applied for IPO on the Shanghai or Shenzhen markets, in an effort to bring in more transparency. After submitting an IPO application, companies typically need to wait for about six months before obtaining the regulatory nod for a listing. However, the process could be as long as two years, depending on the quality of application.

Realty bites

But totally shunning the IPO route are real estate companies, once the stars of the bourses. A government-led clampdown on bank, bond, equity and trust market financing has left developers with little choice other than to set up their own funds. As property developers launch their own vehicles in a desperate bid to bridge an estimated $111-billion financing gap this year, the fledgeling real estate investment fund market in China could see a surge of activity.

Major developers such as China Overseas Land & Investment and Gemdale are among the first to have launched their own funds, along with China Vanke, the biggest listed property company by sales. Times are bad for property developers in China. Slowing sales and falling prices are hitting in just as refinancing pressures are soaring. About $2.2 billion in syndicated property loans and club deals will become due this year, while a further USD18.6 billion needs to be found to repay maturing real estate trusts.

A total of 29 property funds raised $4.1 billion in 2011, up from $2.9 billion raised by 28 vehicles in 2010. Experts say that more than $6 billion will be raised in 2012 and that the property fund market will expand at an annual rate of 40 to 50 per cent over the next few years.

The writer is a freelance journalist based in China.