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China churning out billionaires like it's 1999 with soaring IPOs
[BEIJING] 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 Ltd, 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 percent in U.S. 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 consumer electronics company, Shenzhen Fenda Technology Co, invested in a maker of Google Glass-like products; Ruan Hongxian, the chairman of Yunnan Hongxiang Yixintang Pharmaceutical Co, China's third-biggest publicly traded drug-store chain; and Zhou Wei, chairman of medical software developer Shanghai Kingstar Winning Software Co.
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 chairman of Spring Airlines Co, landed a US$1.3 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 capitalization.
"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 chairman of Beijing Kunlun Tech Co, reached US$1.8 billion net worth after the Internet video game developer quadrupled following its offering, according to the Bloomberg Billionaires Index.
Sun Qinghuan, is set to become a billionaire when MLS Co, China's biggest maker of LED products, begins trading today. MLS plans to sell 44.5 million shares for 21.5 yuan (S$4.67) on the Shenzhen Stock Exchange, according to a filing on Feb 9. Sun will own about 358 million shares after the IPO, giving him a net worth of about US$1.2 billion, according to data compiled by Bloomberg.
Ma Hong, chairman of Dongguan Souyute Fashion Co, a casual-wear apparel maker, became a billionaire on Feb 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 US$1 billion. Zhou Guohui, the 50-year-old chairman of Eternal Asia Supply Chain Management Ltd, which runs a logistics and data- processing company, has a fortune valued at US$880 million including cash holdings of about US$150 million, after deducting shares pledged as collateral.
Alibaba, Alipay No company produced more billionaires than the finance affiliate of Alibaba Group Holding Ltd. Zhejiang Ant Small & Micro Financial Services Group Co, the parent of electronic payment operator Alipay, doubled its valuation to about US$50 billion 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.
Mr Ma, 50, has added US$6.7 billion to his US$35.1 billion fortune this year, according to the Bloomberg index, making him Asia's wealthiest person. As a group, China's 25 richest people are up US$21.3 billion for the year.
Some investors expect further gains in Chinese stocks. At 15.5 times earnings, the Shanghai Composite trades at the lowest multiple after Hong Kong among the world's 10 biggest stock markets. The MSCI China Index, which tracks Chinese companies traded in Hong Kong, is valued at 10 times earnings. The central bank's move this month to cut the the amount of cash lenders must set aside as reserves may also boost stocks.
"It's cheap and I think earnings should be OK now that you have lower input costs and lower company fundings because of the lower interest rates and also the lower required reserve," said Daphne Roth, the Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about US$220 billion. "That'll pump in some liquidity back into the system." Others are less sanguine. Andy Xie, a former World Bank economist, said the the Chinese rally may be short-lived. He said the surge in IPOs in China could "overwhelm" demand from investors.
Private Equity "There are thousands of companies that private equity firms have invested in that are ready to come into the market," Mr Xie said. "It's not like a little bit of oversupply. There's a tsunami of IPOs coming." There are also risks betting on IPOs and the growth outlook for these new companies.
"People tend to believe that new stocks should perform better than the existing stocks, but this is not necessarily true," said Jing Ulrich, vice chairman of Asia Pacific at JPMorgan Chase & Co. "Smaller companies may grow faster, but they may also be riskier and more volatile due to their shorter track record and lower coverage by the brokerage community." That hasn't stopped some of China's wealthiest moguls from 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 Co, China's biggest owner of movie screens, surged by the daily limit for more than two weeks after it started trading, adding US$3.8 billion to Mr Wang's US$28.9 billion fortune.
"We could have priced Wanda Cinema a lot higher if not for regulatory limits," Mr Wang, 60, said in an interview late last year. "We chose an A-share listing because you get a much better valuation in China," the billionaire said, referring to yuan-denominated stocks traded on mainland exchanges.
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," Mr Xiao said through his spokesman Zhou Guiqing, who described the billionaire as "thrifty."