Linglong IPO attracts 2000x more interest than offer

On 21 June Shandong Linglong Tyre Co Ltd announced it would issue 200 million shares of common stock at 12.98 yuan per share as part of its initial public offering (IPO) on the Shanghai Stock Exchange. At the time, the company said it expected to raise roughly 2.60 billion yuan, which various news sources suggest is intended to fund investment in new tyre production lines.

However, the IPO also comes at a time when the Chinese tyre manufacturing industry is under pressure in general and when Linglong’s own financial figures have significantly contracted. According to Linglong’s IPO prospectus, total truck, car and bias tyre sales have fallen from 11.288 billion yuan in 2013 to 8.619 billion in 2015.

Nevertheless, EBITDA remained basically stable during the period, falling very slightly from 1.877 billion yuan in 2013 to 1.871 billion yuan in 2015. The biggest change in Linglong’s strategy during this period was a significant switch from truck tyre emphasis (TBR accounted for 48.8 per cent of sale in 2013. By 2015 it was 38 per cent) to car tyres (2013: 45.7 per cent. 2015: 58.1 per cent). Perhaps this ability to improve mix so quickly and successfully – if the EBITDA figures are anything to go by – is why the Shanghai IPO attracted interest some 2,220.53 times the amount on offer, according to Reuters’ Hong Kong office.