Global Biz

Chinese companies driving brighter market for IPOs

(Agencies)
Updated: 2010-10-02 11:00

NEW YORK?- High-flying shares of two Chinese companies helped set a cheery tone for the long line of companies hoping to raise money from capital markets this winter.

Related readings:  Investment value analysis of ChinaCache, ChinaNetCenter  China's Goldwind revives HK IPO to raise $917m  China Medical System raises $129m in HK IPO  Goldman, UBS take backseat in Shenzhen

After a slow summer, seven IPOs debuted this week, six of which closed higher than their IPO price Friday. Five more deals, including two Chinese companies, are expected next week.

"I see a very strong green flag being waved," said IPO Boutique analyst Scott Sweet. With most deals doing well, there's a push for the companies that have said they want to go public to do so. The pipeline of companies eyeing the capital markets for funds is at its highest level since at least late 2007, according to IPO researcher and investment group Renaissance Capital of Greenwich, Connecticut.

The best returns for investors this week came from China. ChinaCache International Holdings Ltd. was the biggest gainer of the year, rising 95 percent in its first day of trading Friday. Country Style Cooking Chain Co is up 76 percent since its debut Tuesday. Shares of both priced above expected ranges, which has happened in just 11 percent of IPOs this year.

"People are willing to pay up for growth," said Francis Gaskins, ananlyst with research firm IPOdesktop. They have become more willing to bet on long-term potential as the outlook for the world economy brightens a bit. A big US stock market rally in September also helped boost the taste for IPOs, he said.

ChinaCache turned in the best first-day performance of the year despite a choppy financial history. It has not posted an annual profit in the past five years, and its revenue slipped in 2009 after years of fast growth.

But the company, which helps distribute Internet content and manage Web traffic for businesses and government agencies in China, has half the market share of an industry that in China is still new.

ChinaCache expects the market to grow substantially in China as Internet use increases with the growth of the Asian economy.

Country Style Cooking, a fast-food chain based in China's Sichuan province, has grown from nine restaurants in 2008 to 101 restaurants at the end of June. It said it plans to have more than 130 restaurants in China at the end of the year.

Still, there remains pressure from investors to keep initial prices on shares of many IPOs low, analysts said. Insurer Liberty Mutual Agency Corp. delayed its share sale this week because demand for its stock was too week. The IPO, which could have raised as much as $1.29 billion, would have been the biggest of the year. Analysts said Liberty Mutual Group Inc. was asking too high a price for the stock of its subsidiary.