Sinopec's IPO is the largest in the 11 years of China's markets, but retail demand may lag

By staff and wire reports

SHANGHAI, China -- The largest initial public offering in the history of China's stock exchanges had a tentative first day of trading on Wednesday.

Sinopec, China's second largest oil company, sold $1.4 billion (11.8 billion yuan) in stock to Chinese investors in July.

The retail portion of its offering started trading Wednesday.

The stock made an early go of it, rising 9 percent to 4.60 yuan immediately after the opening bell in Shanghai.

But it closed up just 3.3 percent at 4.36 yuan.

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Market watchers say the size of the offering will also mute further success.

Sinopec -- full name China Petroleum & Chemical Corp. -- has listed on Shanghai's A share market, which is open only to domestic investors.

Phillip Chan, head of research for Shenyin Wanguo Securities, said he expects the demand to be mainly institutional.

China's retail investors only go for smaller, speculative stocks that can give them a quick jump in their capital gains, he said.

Sinopec set aside 45 percent of the offering for institutions and strategic investors, who will be locked up from trading for three to eight months.

Leading look to mainland markets

The company already trades overseas, in Hong Kong, New York and London, after debuting last October.

In Hong Kong, its stock closed down 0.8 percent at HK$1.23 on a day the Hang Seng finished under 12,000 for the first time in two years.

But Sinopec is leading a rash of Chinese companies looking to raise capital at home in China's inflated markets. China first established exchanges 11 years ago, in Shanghai and Shenzhen.

The stock will be a bellwether for Chinese stocks with Sinopec accounting for around 10 percent of the Shanghai A shares after the offering.

With this listing, it sold 2.8 billion shares at a price of 4.22 yuan, or 51 cents, per share.

It is using 6.4 billion yuan of the proceeds to buy oil-exploration company Sinopec National Star. Sinopec is also using the money to fund two oil-pipeline projects.

A rocky ride

But large-cap stocks have not done well in China. The previous record holder on the A share market, Baoshan Iron & Steel, raised $950 million late last year but has slumbered since.

China's wildly speculative markets have been on a rocky ride this year.

The B shares that are open to overseas investors have been the best-performing in Asia.

But both they and the A shares have recently slumped amid worries about a government crackdown on bank money being used to play stocks illegally.

The A shares are down around 14 percent from their mid-June high.

Reuters contributed to this report.