Shares of 58.com jumped as much as 50% in the morning session of their debut trading day on the New York Stock Exchange, after the Beijing-based online marketplace priced its $187 million float at a price beyond the given range.
The book of the deal was strong with support from about 500 accounts. At the final pricing level, the overall book was more than 20 times covered, according to a source. Investors include Asia-based funds, the US tech community, as well as big global long-only and sovereign wealth funds.
The better-than-expected response from investors enabled the company to increase its price guidance during bookbuilding. The company was selling 11 million American Depositary Shares (ADS) at $13-$15, which was increased to $15-$16 on Tuesday.
Even having been raised, the final price was set at $17 per ADS, 30.8% higher than the original low end. The price represents a 2014 price-to-equity ratio of 29 times. Bankers said earlier that the company’s peers were trading at an average P/E of 24 times.
However, investors obviously believe that there is still room for profit, even though they need to make more commitments to get the shares.
A source said that, during the last days of bookbuilding, the company put a requirement on order size. Only those investor accounts with more than $15 million orders could be accepted.
The shares closed up 41.9% at $24.12.
“Over the last painful months, it’s the best IPO window we had,” said a banker on the transaction.
Investor confidence in internet IPOs [is gradually coming back] as there has been a 30% surge of share prices in the sector, and many Chinese internet firms released financial results that have beat projections.
Bankers do not think they are being too aggressive on price. “People care about the earning potential and the upsize of the price is a fact that clearly shows people are willing to come and pay the price,” said another banker.
58.com is not alone in seeing its shares jump on debut. And the share prices of other Chinese groups listed in the US market have surged over time. For example, Qihoo has gained 478%, Vipshop rose 935% and YY.com climbed 352% since listing.
The success of the IPO and debut suggests investors were willing to overlook two issues that could have had a detrimental effect on the listing.
On Monday, Liu Xuanfu, a founder shareholder of 58.com, filed a lawsuit against management, including the CEO of the company, alleging that his rights had been violated over an equity issue. The lawsuit came at a critical time - three days before the IPO pricing.
On the same day, a report from Muddy Waters Research, which questioned NetQin Mobile’s finances, dragged the group’s share price down as much as 62% over the following three days. The report also hit the shares of other US-listed Chinese internet firms, including Sohu, Changyou.com and Netease.
However, the negative news did not hinder the listing process of 58.com. The company, instead, increased its price range the next day, shrugging off some concern that the listing would be impacted.
Meanwhile, Baidu-controlled Chinese travel site Qunar has lifted the price guidance for its New York Stock Exchange listing to $12-$14 apiece, from $9.5-$11.5 as it seeks to raise up to $155.4 million.
The book was multiple times covered days ago and will be priced on Friday morning Hong Kong time, said a source familiar with the situation.
The listings of 58.com and Qunar, the first two in a string of Chinese internet companies looking to list in the market, have raised more market attention for the other listing hopefuls.
Online sports lottery operator 500.com and mobile internet platform Sungy Mobile have filed for their separate IPO on the NYSE for $150 million and $80 million, respectively. Both of them are expected to start a roadshow as soon as mid-November. Bankers said more will get ready to hit the market in the first quarter next year.
Citi, Credit Suisse and Morgan Stanley were bookrunners on the 58.com deal, while Deutsche Bank and Goldman Sachs are arranging the Qunar float with Stifel as the passive bookrunner. Deutsche Bank also helps 500.com’s listing while Credit Suisse and JP Morgan are leads on the Sungy transaction.
