Beijing Enterprises 1,276 times oversubscribed

Today's flotation of Beijing Enterprises looks certain to join the South Sea Bubble and the crazy market in 17th Century Dutch tulip bulbs in the record books of stock market manias. The Hong Kong-listed investment company makes its debut this morning after an issue of 150 million shares to raise just pounds 148.5m attracted applications worth a massive pounds 18.9bn.

The rush to apply for shares was so frenzied, market sources said, that it threatened the very stability of the colony's banking system. Trading in Beijing Enterprises is expected to be so frantic that the Hong Kong Stock Exchange is making arrangements to prevent the computerised trading system from crashing.

The Chinese-controlled investment company is coming to market with a record 1,276 times oversubscription rate. That means the vast majority of prospective investors will collect their refund cheques today from the Museum of Chinese Historical Relics; a venue apparently chosen without any sense of irony.

Most analysts predict the shares will soar three times above their issue price, although few believe they will be able to sustain such an extraordinarily high rating, which would represent something approaching 60 times the company's earnings.

The massive withdrawals from bank accounts to fund the share applications caused temporary liquidity problems as overnight rates soared to 26 per cent. It is quite possible that Beijing Enterprises will make almost as much from the listing process as it will from the modest HK$1,872m (pounds 148.5m) raised from the sale of the shares. However the company announced it was making the unprecedented concession of not cashing cheques for unsuccessful applications of fewer than 8,000 shares.

The avalanche of applications for Beijing Enterprises is a reflection of the current fad for newly issued red-chip counters. Red chips are companies controlled by Chinese mainland corporations or conducting the bulk of their business in China. Investors are buying political influence. Beijing Enterprises, for example, has been flaunting its connections with the local government in the Chinese capital and suggesting it has the political clout to broker deals which others cannot match.

Similar claims were made by Gitic Enterprises, whose share issue was oversubscribed by 892 times. Also a holding company, it is closely tied to government entities in Southern China.

An editorial in the Hongkong Standard newspaper described the scramble for Beijing Enterprises shares as an indication that China understood Hong Kong people far better than the British ever did. It said the new sovereign power was busy posting a huge dollar sign, understood by all and signifying few doubts about the future.

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