Neway Valve soars in Shanghai as China IPO freeze ends

China's first initial public offering for more than a year got off to a flying start, with the stock rising more than 40 per cent on its first day of trading.

Shares in Neway Valve rose sharply on Friday after the Suzhou-based group raised $240m from a Shanghai listing, marking the end of a regulator-forced freeze in the primary market. Trading was briefly suspended after the stock rose so fast it exceeded the exchange's trading limits.

In 2012 China was the second-biggest IPO market, after the US. But concerns about the quality of companies waiting to list, and the sheer number of them - almost 900 at one point - prompted the China Securities Regulatory Commission to block all new listings.

In the 15 months that followed, the regulator ordered fresh checks on the accounts of those seeking to list, and completed an overhaul of listing rules in an attempt to increase investor protection in the heavily retail-driven market.

Hundreds of companies ditched their listing plans as a result, while a handful of larger companies decided to tap international investors in Hong Kong instead.

The reopening of the market, which was flagged in November, has not been a smooth ride, in some cases because of voracious demand among investors.

A number of companies have withdrawn their applications amid regulators' concerns that they were pricing deals too high, while the biggest IPO expected this month - that of Shaanxi Coal - has been halved in size twice. Because of a general aversion to coal stocks, shunned as investors fear a clampdown on the sector as the government tries to reduce pollution, it will now raise $600m. Shaanxi Coal had sought $3bn when it submitted its documents before the IPO freeze.

On Friday the CSRC told two companies to delay their IPOs after it received complaints about information disclosure.

New listings have long been seen in China as a chance to turn a quick profit from day-one stock price pops, something the CSRC has been trying to change. The IPO freeze and the fact that most of the upcoming offerings are from small, fast-growing companies - a segment of the market that has performed well in the past 12 months - have fuelled strong investor appetite.

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Helen Zhu, equity strategist at Goldman Sachs, said structural reform and economic stability would be the two main factors driving the market this year, rather than a flood of listings. However, the IPO restart would probably weigh on sentiment in the short term, she added.

EY estimates that companies will raise a total of Rmb200bn ($33bn) this year in China from IPOs. Companies raised $15.7bn in 2012 before the listings freeze, according to data from Dealogic, and $41bn in full-year 2011.

The Shanghai Composite index dropped 1 per cent on Friday to close at 2,004, the lowest level since early August.

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