Two Chinese companies are testing the waters of US investor sentiment before possible New York listings, providing a litmus test for peers that have seen fundraising plans hit by the closure of the mainland IPO market.
Online marketplace 58.com began a roadshow in Singapore on October 18 for its IPO, looking to raise up to $165 million. The company is offering 11 million American Depositary Shares (ADS) at an indicative price range of $13-$15 apiece. The price range represents a 2014 price-to-equity ratio of 22.4-25.7 times, slightly higher than the valuation of its peers, sources said.
There is a concurrent private placement of 15 million ADSs with the IPO. US venture capital firm DCM, an existing shareholder of 58.com, has subscribed to the shares as a cornerstone investor.
Investor appetite has been so healthy that the book of the deal was covered during the morning of the first day of the roadshow, according to two sources familiar with the situation.
Meanwhile, online travel search platform Qunar is about to launch a roadshow for its US IPO of up to $127.7 million, with a similar timetable to 58.com. The price range of the 11.1 million shares has been set at $9.5-$11.5 per ADS, and pricing is slated for October 31, a day after 58.com’s.
If it hits the market as scheduled, 58.com’s deal will break the drought of US IPOs and become just the third Chinese company to get listed in the US in 18 months. Comparably, there were 13 listings in 2011 and 38 in 2010 from the country, Dealogic data shows.
The timing of a US move is canny – not just because the Chinese market is closed to new listings.
The New York Stock Exchange has gained 11.5% and the Nasdaq Composite Index 25.5% this year as worries of US’s QE tapering ease and Europe stabilises. The Bloomberg China-US Equity Index has also surged 29% during the last four months.
“We come out to the market not only because the US stock market is bullish and optimistic, but also because investors like internet companies and much value their growth potential,” said a source on one of the two deals.
Chinese travel agent Ctrip.com last month raised $800 million from a convertible bond sale at the highest conversion premium by a Chinese issuer since 2007.
Qihoo 360 Technology, a Chinese internet service provider specialising in developing internet and mobile security products, and Vipshop, a Chinese online retailer that listed on NYSE in March 2012, also issued $600 million convertible bonds and $172.8 million placement shares, respectively. Both of them lifted the deal size based on strong support.
“The two companies have their niche markets and selling points,” said a Hong Kong-based institutional investor who have invested in Chinese companies’ US listings before.
According to their prospectuses, China’s largest search engine company Baidu still holds a 58.81% stake in Qunar upon completion of the offering, while 58.com has US private equity firms Warburg Pincus and DCM as shareholders. 58.com recorded net income of $300,000 during the first half as revenue rose by more than 50% from the year-ago period.
What will also help the deals is Alibaba’s plan to list in New York. The deal has attracted investor attention and is expected to offer global investors a good opportunity to get access to the biggest online consumer market in the world.
However, whether these two deals will be successful and offer hope to others remains uncertain.
“The investor response to Chinese IPOs is still mixed. Whether Chinese deals will be welcome by the market or not is company-specific,” said a Hong Kong-based ECM banker with a global investment bank on one of the deals.
Overseas investors’ main concerns about Chinese companies remain. For example, shares of China Minzhong Food, a Singapore-listed food and beverage firm, plunged 48% in the morning trading session on August 26 as Glaucus Research Group, a California-based short selling company released a report questioning Minzhong’s financial numbers and some sales numbers.
“The share prices [in] some [of the] more traditionally significant sectors have climbed to a high point. The US investors are looking for the growth story. That’s why some internet issuers have a shot. But it does not necessarily means that appetite has come back for all Chinese companies,” said a banker not involved in the Qunar and 58.com deals.
Investors will look at the US listings from Chinese issuers but are likely to be wary. “We will be very selective to Chinese companies. We need to keep cautious and try to reduce the risks, especially in a volatile market,” said the Hong Kong-based long-only investor.
Contrary to the traditional investors from the US, Asian investors are now showing more interest in the listings of Chinese issuers. Sources on the Vipshop placement and the Qihoo deal told FinanceAsia that about half of the orders came from Asia, which has not typically been the case.
Deutsche Bank and Goldman Sachs are arranging the Qunar float with Stifel as the passive bookrunner. Citigroup, Credit Suisse and Morgan Stanley are on the 58.com deal.
