Are Chinese IPOs making a comeback?
After a cooling oE period for Chinese companies making initial public offerings (IPO) in the US due to past accounting scandals, there could be a gradual comeback underway with one new company scheduled to list later this year.
58.com, a Chinese local classified-ad website modeled after Craigslist.com, plans to seek at least $100 million in an IPO, working with Credit Suisse Group AG and Morgan Stanley, Bloomberg News reported on Wednesday, quoting "people familiar with the matter".
The Beijing-based 58.com was founded in 2005 and provides mostly free classi-fied ads for apartment rentals, job recruitment and secondhand goods and serves more than 300 cities in China.
The company would become the second Chinese company to list in the US this year and fourth since the end of 2011, according to Bloomberg. In late June, Hong Kongbased GDC Technology - a digital-cinema equipment maker backed by the Carlyle Group - postponed its IPO on Nasdaq citing "poor market conditions".
"I think the overhang regarding the accounting scandals affecting Chinalinked deal flow in the US is a thing of the past," said Josef Schuster, founder of Chicagobased IPOX Schuster LLC, a research firm specializing, financial products related to global IPOs.
Schuster said a few factors - both macro and micro - are driving a "renewed interest" in Chinese IPOs in the US.
"From a macro-perspective, there is strong interest for IPOs in the US, in general, due to the buoyed stock markets and increasing risk appetite," he said. "IPOs with a US domicile have naturally benefited, but also foreign IPOs, like Chinese firms, in particular IPOs in specialty industries such as internet, consumer related deals."
Strong demand from a micro perspective, said Schuster, has also been driven by the solid performance of IPOs in general, citing most of the recently listed companies, including YY, which were "fairly priced".
Guangzhou-based YY Inc, a social-networking site, raised $94.2 million last November and has more than tripled in trading. In June, Beijing-based online retailer LightIntheBox Holding Co, the first Chinese company listed in the US this year, raised $90.7 million and has shown strong performance since, gaining more than 75 percent earlier this week.
Chinese IPOs went down following a series of accounting scandals in 2011 when small Chinese companies went public through a reverse takeover. Most of them were not audited by any of the Big Four accounting firms - KPMG, Ernst & Young, PricewaterhouseCoopers, and Deloitte.
In 2011, there were 12 Chinese IPOs, down from 41 listings in 2010, according to research firm Renaissance Capital.
"The US equity market is built on trust, and many Chinese issuers have destroyed trust among US investors," said Timothy J. Keating, CEO of Keating Capital, a business development company that specializes in making pre-IPO investments. "It will take a long time for this damage to be repaired, and rightfully so."
Qunar, a Baidu-backed Chinese online travel company, has been reported by local media to be planning to raise some $1 billion to list in the US sometime this year.
Among the slow pace of Chinese IPOs in the US, most were media and tech companies which were driven by a new wave of Chinese startups.
"Growth investors are seeking opportunities that they see working in the US, but which have the potential to be applied to a market four or five times larger than the American market," said Keating.
Schuster said good performance from recentlylisted companies and those in the works to be listed is a good sign. "We see a strong pick-up in China-linked IPO activity in the US going forward, in particular for internet/consumer related deals," he said.
But Keating thinks the process will continue to be gradual and the momentum of the 2010 listings of Chinese companies will take time to rebuild.
"I expect that it will take several years before we see any time of significant increase in the number of Chinese companies completing US IPOs," Keating said.
yuweizhang@chinadailyusa.com
