YY Opens Way For Chinese US IPOs YY为中国企业赴美上市破冰
The prolonged winter for Chinese IPOs in New York may finally be nearing an end, following the modestly successful listing of commercially-focused social media site YY (Nasdaq: YY). I am calling this listing “modestly successful” because it priced at the low end of its range and rose a modest 8 percent on its trading debut, which would be a good but not a great result under most circumstances. But against the broader background of a deep freeze in US investor sentiment towards Chinese companies over the last year and a half, this kind of performance could actually be considered a major breakthrough and triumph for the battered sector.
I suspect this modestly positive performance could lead to a flurry of 2 or 3 more New York IPOs by Chinese companies before the end of the year, with stronger names like video sites Xunlei or Sohu (Nasdaq: SOHU) video the most likely candidates to make offerings in the next few weeks. Other money-losing candidates like online clothing seller Vancl may have to wait a bit longer, as the market is probably not yet ready to embrace these companies that are still posting big losses without hope for profits anytime soon.
Let’s take a closer look at YY, which raised $82 million in the first major IPO by a Chinese firm in New York in 8 months. The only other major company to make an offering this year was discount online e-commerce firm Vipshop (NYSE: VIPS), whose IPO flopped in March due to frosty investor sentiment towards Chinese firms following a stream of accounting scandals dating back to spring of 2011. (previous post) In a recent series of signs that positive sentiment was finally returning to the sector, Vipshop shares have rallied strongly over the last 2 months and are now trading well above their IPO price as the company looks set to turn profitable in the current quarter.
Let’s take a closer look at YY, which bills itself as a powerful platform for businesses to reach big groups of consumers by allowing them to speak to large groups of users in online forums. The company, which is profitable, previously set a price range of $10.50 to $12.50 for its US depositary shares (ADSs), and ultimately priced the offering at the very bottom of that range at $10.50. (English article; Chinese article) While that may not sound too good, it marks a big improvement over Vipshop, whose shares priced well below the initial range the company set for its offering.
After trading began, YY shares rose as much as 12 percent before finishing the trading session up 7.7 percent at $11.31. While the closing price was still just in the middle of its original pricing range, such a showing still looks like a big achievement for a Chinese web firm against the broader backdrop of the previous year.
It’s probably still too early to say if this early thaw in investor sentiment will be short-lived or more sustainable, which is why I suspect we may see 1 or 2 companies that have been waiting a year or more to make IPOs quickly follow with their own offerings. But any mini-surge in new offerings will be limited, since most companies won’t attempt to make any share sales during the 2 months from mid December to mid February due to the market slowdown during the Western and Chinese New Year holidays.
Bottom line: The modest success for YY’s New York IPO could spark a flurry of 1-3 more similar offerings before year end, as investor sentiment improves towards profitable Chinese firms.
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