Billionaires in China lose their fortunes in IPO frenzy

BEIJING • It took just three weeks for Mr Ding Lieming to quintuple his net worth and become a freshly-minted billionaire. Six months later, almost half his fortune was gone. A tale of bold bets gone bad? Nope, just business as usual in the Chinese stock market.

The wild ride for Mr Ding, chairman of Betta Pharmaceuticals, illustrates the latest upheaval surrounding wealth creation in China: Tycoons who rapidly gain - and then almost as quickly lose - their billionaire status amid swings in the country's initial public offerings (IPOs).

The IPO booms and busts, fuelled by a mix of government intervention and unbridled speculation, are becoming more frequent as the Chinese authorities accelerate approvals for newly listed shares. While the offerings have made billionaires out of at least 23 tycoons in the past 12 months, their collective net worth has dropped from a peak of US$55 billion (S$76.4 billion) to US$35 billion as of Tuesday.

The numbers are a stark reminder of the flaws in China's IPO system, and of the risks facing newly-rich entrepreneurs, especially those who pledge their shares as collateral.

Mr Ding's experience with Shenzhen-listed Betta Pharmaceuticals is a case in point. Like many Chinese firms, the maker of lung cancer drugs priced its IPO at 23 times reported profits, the highest valuation allowed by Chinese regulators. The cap, which does not apply once trading begins in the secondary market, is less than half the median price-to-earnings ratio of already listed shares in Shenzhen.

The limit was designed to protect retail investors; it has instead fuelled speculative frenzies that can leave latecomers vulnerable to losses, said University of Florida finance professor Jay Ritter.

China's securities regulator did not immediately reply to a faxed request for comments.

After reaching a high on Nov 25 last year, Betta Pharmaceuticals shares dropped for five out of the next six months, knocking more than US$500 million from Mr Ding's fortune. The firm reported financial results for the first quarter on April 25; sales dropped 17 per cent from a year ago, while net income slid 27 per cent.

Some of China's IPO tycoons have managed to stay above the billion-dollar mark, even as their firms' share prices retreated from post-listing highs. These tycoons include Mr Qin Qingping, chairman of chemical producer Jinneng Science & Technology, and Mr Zhou Liangzhang, chairman of Hexing Electrical. The billionaires, neither of whom has appeared on a major international wealth ranking, have fortunes of US$1.1 billion and US$1.6 billion, respectively. Both did not reply to requests for comments sent to their companies.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 22, 2017, with the headline 'Billionaires in China lose their fortunes in IPO frenzy'. Print Edition | Subscribe