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Why China Molybdenum's Shanghai IPO Made A Big Splash

Why China Molybdenum's Shanghai IPO Made a Big SplashChina Molybdenum Company (HKEX:3993,SSE:603993) surprised analysts when it soared from its initial price of 3 yuan to as high as 9.48 yuan on October 9, the stock's first day of trading on the Shanghai Stock Exchange. The shares have since moved lower to today's level of around 8.76 yuan.

The Shanghai IPO is a secondary stock issue for China Moly. Its main listing on the Hong Kong Stock Exchange barely budged in comparison, rising just 3.4 percent during the day.

China Moly's big jump triggered a wave of speculation from analysts

The company aimed to raise US$579 million from its IPO to finance a new alloy project and increase its overall output. China Moly is China's largest producer of molybdenum, and the world's fourth-biggest. It is also a major tungsten producer.

However, the company cut its fundraising target by over 83 percent, to about US$93.5 million, after the China Securities Regulatory Commission (CSRC) asked it to lower its IPO price from between 6.49 yuan and 8.48 yuan to 3 yuan. The company also cut the number of shares it floated by 63 percent, to 200 million, due to a recent surplus of new issues coming on the market.

In a CNBC article, Dongxing Securities analyst Zhang Fang said the sharp jump in the share price “is the result of excessive pessimistic mood when the IPO price was set. There is now renewed speculative interest in relatively small IPOs.”

Yingda Securities analyst Liu Li agreed. “This was a very rare and heavy intervention by the regulators,” he told Reuters. “There was concern by the regulator that the offering would weigh on an already sluggish market. Today's market response shows that the offering was priced too cheaply.”

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