Beijing-Shanghai high-speed railway operator makes bullish debut as China seeks more funds to expand network

Daniel Ren

Beijing-Shanghai High Speed Railway, the operator of the rail link between China’s two biggest cities, made a strong debut on Thursday with its shares closing near the maximum allowed limit under the Shanghai Stock Exchange trading rules.

The shares rose 39 per cent to 6.77 yuan at the close of trading at 3pm local time. They earlier surged as much as 44 per cent to 6.99 yuan at the opening bell, the ceiling set under the rules. Some 1.4 billion of shares valued at 9.18 billion yuan (US$1.35 billion) changed hands, making it the most traded stock on the day.

The railway operator netted 30.7 billion yuan by selling 6.29 billion shares at 4.88 apiece, among the biggest IPOs over the past decade. Postal Savings Bank of China, which raised almost 33 billion yuan last month, gained 2 per cent on its debut. Beijing-Shanghai High Speed Railway trimmed its offering by 17 per cent without giving a reason.

“A 30 per cent gain upon trading debut is a reasonable gain for investors,” said Ivan Li, a money manager at Shanghai-based Loyal Wealth Management. “As the country’s most profitable railway, it was not a surprise that investors showed keen interest in owning the shares.”

China’s Beijing-Shanghai high-speed rail operator is more profitable than Apple, Kweichow Moutai

Beijing-Shanghai High Speed Railway, which operates the 1,300-kilometre rail line, achieved 9.52 billion yuan in net profit on revenue of 25 billion yuan in the nine months to September 30, according to information in its listing prospectus. Its profit margin was higher than iPhone maker Apple and liquor producer Kweichow Moutai.

Last year, 203 mainland companies raised a combined 253 billion yuan from their IPOs on Shanghai and Shenzhen stock exchanges, according to official data. That was the highest amount since 2011.

China is seeking to further liberalise the IPO pricing mechanism to give market players more room to determine the value of IPO applicants after experimenting with a registration-based share offering system. Beijing-Shanghai High Speed Railway priced its new stock at 23.39 times earnings multiple, above the current cap of 23 times.

Beijing just made it easier for listed companies to IPO spun off units on domestic exchanges

The rail operator plans to use part of the IPO proceeds to buy a stake in the Beijing Fuzhou Railway Passenger Dedicated Line Anhui Company, whose value was pegged at 50 billion yuan, the document shows.

Lu Dongfu, chairman of China Railway Corporation, parent of the Beijing-Shanghai High Speed Railway, said earlier this month that the IPO was just the beginning of fundraising campaign involving key players in the national railway network.

China had 35,000km of high-speed railway lines linking most of the big cities across the mainland at the end of 2019. At a work conference in Beijing on January 2, Lu said the group would invest 800 billion yuan to add 2,000km to its network this year, by preferring direct financing to debt for capital, according to information on its official website.

That means resorting to listing profitable assets such Beijing-Shanghai High Speed Railway. Other likely candidates include its special cargo services unit, railcar maker Jingying Heavy Industry and railway equipment maker Beijing Tieke Shougang Railway Technology Corporation, Lu said. Beijing-Shanghai High Speed Railway, the operator of the rail link between China’s two biggest cities, made a strong debut on Thursday after its shares rose by the maximum allowed under the Shanghai Stock Exchange trading rules.

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