2014: The season of the Chinese IPO?

Updated: 2014-03-03 12:00

By Zhang Yuwei in New York and Cai Xiao in Beijing (China Daily USA)

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Chinese companies listing in the United States will see a pickup this year with more than 20 companies expected to go public as investor confidence is restored in Chinese firms, according to executives of the stock exchanges in New York.

"China has become the third-largest country by the number of companies listed on NYSE Euronext, following the United States and Canada," said David Ethridge, senior vice-president and head of capital markets at NYSE Euronext Inc, which operates equity exchanges globally.

Ethridge said there will be between 15 and 20 companies doing initial public offerings (IPO) on the NYSE this year, mainly in the health, high-technology and retail sectors.

As of Nov 30, 2013, there were 74 Chinese companies listed on the NYSE and nine on a smaller subsidiary exchange established specifically for small-cap companies. These companies' total market capitalization stood at $1.04 trillion on that date.

Andrew Hall, managing director of new listings at the NASDAQ OMX Group in New York, said about 20 Chinese firms will go public this year, joining the current 117 Chinese firms on the NASDAQ.

"The US is the largest capitalization in terms of market and there is such a deep pool of investors," Hall said at a recent China-US Chamber of Commerce seminar in New York.

"The most recent listings performed very well and the few that have performed well open the door for other listings to occur as well for 2014," said Hall, adding that many of those companies almost doubled from the time they listed in the past two years.

China, Canada and Israel are three major foreign countries with companies listing on the NASDAQ among its total 2,500 listings, Hall said.

Echoing Hall's point, Josef Schuster, founder of Chicago-based IPOX Schuster LLC, a research firm specializing in financial products related to global IPOs, said China-related deal flow going public over the past two years in the US has seen "terrific performance" despite a reduced number compared to previous years.

"Specifically, $1.00 investing in a basket of China-linked IPOs listed in the US between 2012 and 2014 resulted in $3.59 relative to investing as a benchmark, so there is significant outperformance, which naturally inspires higher investor confidence and hence increases the ability of the average IPO company togo public," Schuster said.

The projected Chinese IPO comeback for this year comes after a stall due to the reverse-merger scandal, where Chinese firms were accused of fraud, accounting irregularities and other corporate governance issues.

Starting in late 2010, the shares of US-listed Chinese companies were targeted by short-sellers. The situation became so serious in the fourth quarter of 2011 that 58 Chinese companies faced the prospect of being delisted in the US.

Their share prices recovered slightly in the first half of 2013. In the second half, conditions improved greatly, with the prices of 50 percent of those companies up more than 50 percent year-on-year. Discount online seller Vipshop Holdings Ltd even saw its price increase 369 percent last year.

Schuster said while the damage caused by the reverse-merger scandal has gradually faded, other challenges - including increased risk appetite for deals in general - are still ahead.

"For investors, one challengeisthat China-linked IPOs - amongst IPOs in general - may becometoo expensive on the onset. Once volatility comes back, these deals may be alsothe biggest casualties," Schuster said. "So, it isvery important to take a broadly diversified view to this investment opportunity."

Six Chinese companies listed in the US last year, raising $720 million, compared with just two IPOs in 2012. Chinese lottery service provider 500wan.com and Android app developer Sungy Mobile were among the six - all of which were Internet firms.

As of the end of 2013, the individual market capitalization of more than half of the Chinese Internet companies listed in US exceeded $1 billion.

The US market is particularly attractive for Chinese Internet companies, and their performances in the capital markets there have been "pretty good", said Ethridge of the NYSE.

Global investors are now paying closer attention to the quality of Chinese companies and conducting intensive due diligence. That's in marked contrast to 2010, when almost all Chinese companies were popular, according to a report by the NYSE.

Chinese companies planning IPOs in the US have become more cautious in choosing banks, accounting firms and law firms for their IPOs, said the report.

For 2014, a number of Chinese Internet-related firms are reportedly going to list in the US.

The micro-blogging site Weibo is reportedly heading for a market listing in New York with a valuation of as much as $8 billion. Nasdaq-listed Sina Corp, which owns 71 percent of Weibo, is looking to raise more than $500 million through the deal, which is expected to take place in the second quarter.

Jumei.com, a Beijing-based e-commerce company that sells cosmetics, is planning a US IPO and will seek to raise about $500 million.

Another e-commerce site, JD.com, recently filed documents indicating plans to raise $1.5 billion in a New York offering.

"The only significant filing I see right now isJD.combut things definitelywill speed up in the next months," Schuster said.

(China Daily USA 03/03/2014 page1)