2.5G mobile WAP service provider priced its IPO at $10.25 on February 3, well below the $10.60 mid-point of the indicative $9.60 - $11.60 range. Citigroup was lead manager.
The mainland wireless player raised $70.52 million from the issuance of 68.8 million ADRs, with each ADR representing 100 ordinary shares. Of this amount, 255,660 ADRs represented old shares, mainly from four to five members of senior management and smaller institutional venture capital firms.
Two major shareholders, Fidelity Investment and Granite Ventures, did not sell any of their stakes. The CEO and CFO also agreed to cash in their shares only in the event of the release of the 15% greenshoe (1.032 million ADRs).
Specialists say pricing below the mid point of the range can be attributed to investor concerns about the performance of the company's peers, namely Kongzhong, Tomonline and Linktone. Kongzhong and Linktone are amongst the worst Nasdaq IPO performers of 2004, down 44% and 38% respectively.
The conversion rate of one-on-one meetings with institutional investors came in at 40%. Geographic demand was 70% out of the US, 20% out of Europe and 10% out of Asia.
About five to 10% of the deal went to private clients, 15% to retail investors and the rest went to institutional investors.
With two of the biggest shareholders deciding not to sell, the size was smaller than the expected $100 million share sale and made it less interesting for institutional investors, says one specialist. There were five to six orders for 10% of the more deal. Two funds got 10% or more of the deal, out of around 170 institutional investors buying into the deal.
One specialist notes that the total oversubscription level was around four to five times, but pointed out that, unlike in Hong Kong, the system works on a first-come, first serve basis.
He adds that the underwriters had succeeded in their target of finding a core of long-only funds; and in differentiating the company from its peers.
It was important to find long-only funds for at least half the allocation because the performance of the sector has been so mixed, he says.
The sector has been rocked by a clampdown on the distribution on 'adult content'. In addition, several companies have been told to stop the practice of billing users who are not actually using their services.
It seems adult content and unauthorized billing, whereby very small amounts are docked off a large group of users, represented an important part of the growth prospects of the sector. Kongzhong, for example, after declaring strong fourth quarter figures earlier this week, indicated that first quarter growth this year would be weaker as a result of the clampdowns.
Consequently, a strong hedge fund presence would have not have boded well for the counter's chances of staying over its issue price.
As a consequence, shares were offered at a discount to the sector, with the price reflecting a price-earnings multiple of nine times 2005 earnings, compared to the sector's 12-13 times average .
Specialists say that the company had a number of positives propositions which ended up convincing a number of investors: Its management, especially the CFO and CEO Wang Qindai, are experienced in launching and running public companies. Several of its top executives were involved in the launch of Asianinfo several years back.
In addition, the company sells WAP services rather than the Multi-media services (MMS) offered by its peers. That means the company has avoided much of the negative fallout affecting the others. In addition, the company claims that WAP is a more user-friendly technology with stronger growth prospects over the next two years, or until 3G replaces the 2.5G technology WAP is based on.
