Debut Offshore IPO Looks Weak, But Not So Bad 阳光油砂上市首日表现差强人意

By newsdoug on March 2, 2012

Sunshine Oilsands Sees Strength in Weak Debut When is a 3 percent decline in the first trading day for a newly listed company a good thing? The answer is: When you’re debuting into one of the weakest IPO markets for Chinese companies listing overseas since the global financial crisis of 2008. I find it interesting that media reports are calling the Thursday debut for Sunshine Oilsands (HKEx: 2012) weak, after shares of the China-invested Canadian energy firm fell 3 percent on their first trading day as they became the first major Chinese IPO in an overseas market for 2012. (English article) I say that because the debuts for most Chinese firms listing overseas have been far worse in the last few months, amid a confidence crisis following a series of accounting scandals for US-listed Chinese firms starting nearly a year ago. The height of the crisis saw a number of firms delay their US and Hong Kong IPOs last fall, as investor sentiment tanked. Online video specialist Tudou (Nasdaq: TUDO), one of the few companies that went ahead with its New York IPO despite the terrible sentiment, saw its share tumble nearly 12 percent on their first trading day in August, and new offerings have disappeared since then. So against that backdrop, a 3 percent decline doesn’t look so bad, especially considering that the broader Hang Seng Index, the main indicator for Hong Kong stocks, also fell 1.5 percent on Thursday, taking a breather after a strong rally to start the year. I haven’t had a close look at Sunshine Oilsands’ financials, but as a company in the relatively risky oil sands business it certainly doesn’t look like a guaranteed winner over the longer term, especially if oil prices come down below the $80 mark in the next year. That reality, along with continued investor caution about China stocks in general, led Sunshine shares to price near the lower end of their indicated range, again a sign that doesn’t look too encouraging. But one has to look at the bigger picture here, namely the fact that the IPO actually made it to market at all and managed debut roughly in line with the broader market. In the current climate, that looks like a positive start to me, and the latest sign that the confidence crisis has bottomed out and positive investor sentiment is starting to return. (previous post) A bigger test could come in the weeks ahead if and when 3 Chinese firms, Internet companies Shanda Cloudary and Vipshop, and car rental specialist China Auto make their debuts after filing in recent weeks for New York IPOs. The 2 Internet offerings will be especially challenging, as both companies are losing money. But if even 2 of the 3 can make it to market and post flat to modestly-down trading debuts, it could be time to officially call a bottom to last year’s confidence crisis.

Bottom line: The first successful overseas IPO of a major China-backed firm this year, despite a weak pricing and debut, is the latest sign that investor confidence is returning to such stocks.

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