China's Beijing-Shanghai High-Speed Railway suddenly scaled down the size of its planned initial public offering (IPO) in Shanghai. The operator of the railway linking Shanghai and Beijing revealed on Wednesday that it would be reducing its IPO size by 17 percent.
According to a filing with the Shanghai Stock Exchange submitted this week, the high-speed railway operator will be reducing its IPO size from 7.56 billion shares to 6.29 billion shares. The company did not provide any reasoning behind its decision.
Despite the reduction, the company's upcoming IPO is still on track to be the largest listing in mainland China since 2015. The IPO is expected to raise around 30 billion yuan or roughly $4.3 billion. The expected amount is similar to the capital raised by Guotai Junan Securities in Shanghai back in 2015.
Beijing-Shanghai High-Speed Railway received approval for its planned IPO from the China Securities Regulatory Commission (CSRC) in November. The company is currently still in the process of determining its listing price. Its price consultation process is expected to be concluded in January next year.
Shanghai is expected to roll out relaxed regulations for IPOs in the coming weeks. This includes allowing companies to price their IPO share up to 23 times their price-to-earnings ratio.
Beijing-Shanghai High-Speed Railway currently has per-share earnings of around 0.203 yuan, which means that it could price its shares up to 4.66 yuan each. With 6.29 billion shares, Beijing-Shanghai High-Speed Railway could raise to 29.2 billion yuan during its IPO.
Sources with knowledge in the matter claim that Beijing-Shanghai High-Speed Railway will use the funds it will raise with its planned IPO to acquire a substantial stake in Beijing Fuzhou Railway Passenger Dedicated Line Anhui Company. The rival operator currently has a market valuation of around 50 billion yuan.
Market analysts have stated that the operator could very easily reach its IPO targets given the hype it has generated. Investors are well aware of the company's stable earnings growth and its key role in the national economy.
For its latest quarter ending in September, Beijing-Shanghai High-Speed Railway managed to rake in net profits of 9.52 billion yuan and revenues of 25 billion yuan. Last year, the company reported total earnings of 10.25 billion yuan, which was a 13.2 percent increase compared to the previous year.
The operator currently only has 67 full-time employees, who oversee all of its assets estimated to be worth more than 187 billion yuan. The company's relatively low operating costs and the constant demand for its services allow the company to rake in stable earnings, which is particularly attractive to investors looking forward to its public debut.
