China’s newest billionaires minted in its IPO frenzy

24-Feb-2015 Intellasia | The Washington Post | 6:00 AM Print This Post

China’s world-best stock market rally made January the busiest month for IPOs in a year. It also created a bundle of new billionaires.

In the first six weeks of 2015, the world’s second-biggest economy hatched about two dozen billionaires, many of whom are riding initial public offerings that investors are driving to their daily price-trading limits – a frenzy that harkens back to the IPO market of the late 1990s.

Among the high-fliers are an airline, a video-game developer and a drug-store chain.

“IPOs have become very hot investment products in China,” said Ronald Wan, chief China adviser at Hong Kong-based Asian Capital Holdings, a Hong Kong-based corporate advisory firm.

“So all the controlling IPO shareholders become very rich afterwards – they become billionaires.”

After a 14-month standstill beginning in October 2012, IPOs resumed in China last year. More than 20 new stocks started trading in January, the most since the same month a year earlier. The offerings follow a 49 per cent rise in the Shanghai Composite Index, the world’s best-performing index in 2014.

While the Shanghai index is little changed this year, the Shenzhen Composite Index – the smaller of China’s two stock exchanges – is up 12 per cent in US dollar terms, Asia’s highest returns and trailing just Russia and Saudi Arabia globally.

The Shenzhen rally has produced at least three new billionaires: Xiao Fen, whose electronics company, Shenzhen Fenda Technology, invested in a maker of Google Glass-like products; Ruan Hongxian, the chair of Yunnan Hongxiang Yixintang Pharmaceutical, China’s third-biggest publicly traded drug-store chain; and Zhou Wei, chair of medical software developer Shanghai Kingstar Winning Software

In Shanghai, where gains in the first day of trading are capped at 44 per cent and subsequent daily increases are limited to 10 per cent, Wang Zhenghua, the 70-year-old chair of Spring Airlines, landed a $1.3 billion ($1.7 billion) fortune after the stock surged by the daily limit in the nine days after it trading debut.

Spring Air, whose executives share hotel rooms and eat instant noodles on business trips to keep costs down, has more than quadrupled in value since the IPO, with the company emerging as Asia’s biggest budget carrier by market capitalisation.

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“This is a man-made scarcity,” said Zhang Lu, securities analyst at Capital Securities Corp in Shanghai, pointing to the surge in share prices.

The net worth of Zhou Yahui, the chair of Beijing Kunlun Tech, reached $1.8b after the internet video game developer quadrupled following its offering, according to the Bloomberg Billionaires Index.

Sun Qinghuan, became a billionaire today when MLS Co, China’s biggest maker of LED products, started trading. The stock surged by the 44 per cent limit in Shenzhen, giving him a net worth of $1.8b, according to data compiled by Bloomberg.

MLS joins about a dozen companies that began trading this week, with the stocks rising by the trading debut limit.

Ma Hong, chair of Dongguan Souyute Fashion, a casual-wear apparel maker, became a billionaire on February 10 – one month after a report said his net worth had crossed the mark. His fortune, which also includes stock held by a company the 47-year-old owns with his wife, increased after he reduced the number of shares he had pledged as collateral.

Other entrepreneurs have fortunes approaching $1b. Zhou Guohui, the 50-year-old chair of Eternal Asia Supply Chain Management, which runs a logistics and data-processing company, has a fortune valued at $880 million.

No company produced more billionaires than the finance affiliate of Alibaba Group Holding.

Zhejiang Ant Small & Micro Financial Services Group, the parent of electronic payment operator Alipay, doubled its valuation to about $50b last month ahead of a private placement and an anticipated IPO, according to people familiar with the matter.

The higher valuation created 13 billionaires, including Alibaba’s chief executive officer Jonathan Lu and chief people officer Lucy Peng, as well as the mother of founder Jack Ma’s private-equity fund partner, Wang Yulian.

Ma, 50, has added $6.7b to his $35.1b fortune this year, according to the Bloomberg index, making him Asia’s wealthiest person. As a group, China’s 25 richest people are up $21.3b for the year.

Some investors expect further gains in Chinese stocks. The central bank’s move this month to cut the amount of cash lenders must set aside as reserves may also boost stocks.

Others are less sanguine. Andy Xie, a former World Bank economist, said the Chinese rally may be short-lived. He said the surge in IPOs in China could “overwhelm” demand from investors.

“There are thousands of companies that private equity firms have invested in that are ready to come into the market,” Xie said. “It’s not like a little bit of oversupply. There’s a tsunami of IPOs coming.”

Some of China’s wealthiest moguls are joining in the recent IPO frenzy. Wang Jianlin, the country’s second-richest person, listed his cinema business last month on the Shenzhen Exchange to raise money. Wanda Cinema Line, China’s biggest owner of movie screens, surged by the daily limit for more than two weeks after it started trading, adding $3.8b to Wang’s $28.9b fortune.

Even when the IPO frenzy eases, investors will focus on “fundamentals,” such as the industry and economic outlook, said Shrikant Bhat, head of wealth management at Citigroup Inc. in Singapore. “If the fundamental growth is there and China is still growing at 6.5 per cent to 7 per cent, the equity market triggers the effect of growth,” he said.

At least one billionaire said he’s more focused on his business than his net worth.

“Being on a rich list only reflects paper wealth,” Xiao said through his spokesman Zhou Guiqing, who described the billionaire as “thrifty”. billionaires-minted-in-its-IPO-frenzy


Category: Hong Kong

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