Stocks News
- Shanghai News
Date: 10-Jan-2007 Sources: (Shenzhen Daily)
SHARES in China Life Insurance Co., the country's biggest life insurer, more than doubled in their Shanghai debut yesterday after a US$3.6 billion IPO, attracting huge interest as the first insurance stock to list on the domestic market.
China Life's closing price valued it at US$141 billion, making it the world's third-largest insurer after American International Group Inc. (AIG) at US$185 billion and Berkshire Hathaway Inc. at US$165 billion.
The debut was a spectacular display of the strength of China's equities market, where the main index soared 130 percent last year, and authorities' success in expanding the market by encouraging top Chinese firms to list domestically.
Local currency A shares in China Life, which has almost half of the country's fast-growing life insurance sector, opened at 37.00 yuan (US$4.73), 96 percent above their initial public offering price of 18.88 yuan and near the high end of market expectations.
When the opening price appeared on an electronic board at the Shanghai Stock Exchange, a roar went up from the crowd of fund managers, company executives and stock exchange officials gathered to toast the listing with champagne.
The shares then continued rising in heavy trade, hitting a high of 40.20 yuan before closing up 106 percent at 38.93 yuan.
Last month, China Life's IPO raised 28.32 billion yuan, the second-largest domestic IPO in China's history. It attracted over 810 billion yuan of subscriptions from retail and institutional investors, a record amount.
'Institutional investors, including new mutual funds created recently, are buying heavily into China Life,'said Zheng Weigang, senior equities analyst at Shanghai Securities.
China Life's leap caused some fund managers to worry that the stock might have gotten ahead of itself, risking a period of underperformance in coming months.
The A shares are now extraordinarily expensive by traditional valuations, placing the firm at about 13 times book value against 2.5 times for the global insurance sector and 2.14 for AIG.
China Life's A shares ended 51 percent above the HK$25.75 close of its Hong Kong-listed H shares, one of the largest premiums seen for a major stock listed in both markets.
Although the two types of stock are not directly exchangeable because of capital controls, they influence each other, and a 4.66 percent fall of the H shares yesterday suggested some investors were not convinced that the A shares would stay so high.
Long-term risks to China Life include the central bank's monetary tightening campaign, currency movements if the government eventually frees up the foreign exchange market, and any major slowdown in China's volatile economy.
But investors in Shanghai were focusing instead on China Life's growth potential in a booming economy with a population of 1.3 billion and huge latent demand for life insurance as the government dismantles a cradle-to-grave welfare system. In the first half of 2006 alone, the company's insurance income rose 23 percent year-on-year to 111 billion yuan, pushing its net profit up 62 percent to 5.8 billion yuan.
The massive demand for China Life is expected to encourage regulators to proceed swiftly with listings of more top financial firms. Ping An Insurance, China's second-largest life insurer, has applied to launch a US$4.5 billion A-share offer in the first quarter of 2007, according to State media.
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