Focus Media is looking to list in Hong Kong to raise at least $1 billion as soon as the end of this year, according to sources familiar with the situation.
The size of the IPO could even be “much larger” given the company is growing at a fast pace and its valuation will increase accordingly, said one source.
Focus Media, China’s largest out-of-home advertising network operator, has posted an annual growth rate of 10%-15% and has a strong and stable cash flow.
Its EBITDA was $480 million and Capex was less than $50 million last year, according to sources.
Focus Media has not formally mandated investment banks for the IPO but two sources said Credit Suisse is the closest to being given the mandates; Goldman Sachs and JP Morgan are also close to the deal.
Founded in 2003 and listed in Nasdaq in 2005, the company was acquired in May 2013 by Carlyle, FountainVest, Citic Capital, China Everbright, Fosun International and chairman Jason Jiang Nanchun for $3.8 billion.
Focus Media’s listing would be the first sizeable IPO from a Chinese company that delisted from overseas markets and would earmark Hong Kong as the ideal market for such take-private companies.
US-listed Chinese companies suffered significant share price falls since 2008 due to the financial crisis, investors shorting the companies’ stock on auditing doubts, and general concerns over China’s economic slowdown.
Some companies chose take-private transactions because they considered their shares undervalued. From 2010 to 2012, at least 45 US-listed Chinese companies had proposed privatisation plans, according to company statements on the website of the US Securities and Exchange Commission.
Some of the biggest include online gaming firms Shanda Games ($1.9 billion) and Giants Interactive Group ($850 million), fork producer Zhongpin ($800 million) and hotel chain 7 Days ($650 million).
Where and when the next batch of take-private companies choose to re-list is unclear. “Hong Kong will be the most attractive market for these companies,” said one source.
The source added that Hong Kong has strengths such as the fact companies do not need to change their overseas corporate structure, Hong Kong-based investors are familiar with their businesses and culture, and valuation could be more reasonable.
China’s A-share market could also be an option since it has reopened and become easier for issuers to list on after reforms.
For some, Hong Kong may not be suitable. The listing plan of Alibaba, China’s largest e-commerce company, which delisted from the Hong Kong stock exchange in 2012, is still in limbo.
The fundraising could be $30 billion, based on the company's latest estimated market value of $128 billion.
It had signalled its intention to relist in Hong Kong but the stock market’s listing rules do not allow a dual-share structure, which is widely used by Chinese internet companies including Alibaba.
Market speculation suggests Alibaba therefore switched its attention to the US for a New York listing, although no final decision has been announced.
Focus Media does not have such a problem with structure and was 30.91% held by Jiang after privatisation, leaving the chairman and chief executive the largest shareholder.
The company’s total network covers 300 million people and more than 100,000 buildings in more than 100 major cities in China.
