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Chinese IPOs in US doldrums

(China Daily)
Updated: 2010-02-26 11:06

Firms' stateside offerings suffer their longest decline in six years

NEW YORK: Initial public offerings by Chinese companies in the US are suffering their longest slump since at least 2004 after providing twice the return of American IPOs over the past five years.

Chinese companies that sold shares in the US last quarter fell an average 4.8 percent in their first month of trading, with losses deepening to 6.7 percent for companies that debuted in January and February, the most consistent retreat since Bloomberg began tracking the data.

Demand is waning after investors paid more than twice the so-called tangible net assets to buy shares of companies from China Nuokang Bio-Pharmaceutical Inc, whose profits stagnated in 2009, to China Hydroelectric Corp, which has reported four straight years of losses.

While the country's economy is forecast to expand more than three times as much as the US this year, the central bank is moving to rein in lending and growth just as a global slump in IPOs deepens.

"If you're looking to reduce risk it's probably the first market to exit," said Madelynn Matlock, the Cincinnati-based manager of the Huntington International Equity Fund at Huntington Asset Advisors, which oversees $15 billion. "Too many public offerings from China coming too quickly to market, combined with less risk appetite and the monetary tightening in China, have spooked investors."

Consumer confidence

The Bloomberg IPO Index of 63 companies on American exchanges has slipped 3.5 percent in 2010 as US consumer confidence slumped to the lowest level since April and investors speculated that Europe's widening budget deficits would slow the global economic recovery.

The MSCI AC World Index of developed and emerging equity markets completed its longest stretch of weekly declines in almost a year this month and is down 3.4 percent in 2010.

US companies from Imperial Capital Group Inc in Los Angeles to Fort Lauderdale, Florida-based Patriot Risk Management Inc have postponed IPOs this year, while New York-based Blackstone Group LP's Travelport Ltd and New Look Group Plc of Weymouth, England, pulled London offerings this month.

The performance of Chinese IPOs in the US began to deteriorate last quarter. Investors in five of the seven companies that completed deals suffered losses in the first month of trading, while buyers of 16 of the 24 offerings by American companies made money, data compiled by Bloomberg show.

China Nuokang, based in Shenyang, Liaoning province, raised $45 million selling ADRs, according to a Dec 9 filing with the US Securities and Exchange Commission. The IPO valued the company at a 135 percent premium to its $3.83 in per share tangible book value, a measure of shareholder equity that excludes assets that can't be sold in liquidation.

The maker of blood coagulants derived from snake venom reported that net income in the first nine months of 2009 was little changed from the previous year at 41.6 million yuan ($6.1 million), the filing showed.

The company's ADRs, which represent eight common shares, fell 16 percent in the first month on the NASDAQ. ADRs represent ownership stakes in overseas companies that are issued by US banks and usually trade on American exchanges.

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