2011 Limps Out With Haitong IPO Withdrawal 海通证券推迟IPO 2011以市场疲弱状态落幕

By newsdoug on December 13, 2011

Haitong scraps IPO as sentiment nears bottom 2011 could well go down as one of the most schizophrenic years for IPOs in recent memory, with the latest pulling of a mega-offering by Haitong Securities (Shanghai: 600837) symbolizing the dismal sentiment that has set in over the last 6 months after a strong start to the year. According to foreign media reports, Haitong, which is already listed in Shanghai, has decided to scrap its Hong Kong offering that would have seen it raise up to $1.7 billion due to dismal market sentiment. The decision comes after a steady string of other deals that were either scrapped or went forward with weak results. One of the biggest, a Hong Kong offering by Haitong rival CITIC Securities (HKEx: 6030; Shanghai: 600030) had to be scaled back but still went ahead despite the weak sentiment. Since then, the company’s shares have sunk about 3 percent from their IPO price in September, despite its premier status as China’s biggest brokerage. Other smaller offerings by online video site Xunlei and Shanda‘s (Nasdaq: SNDA) online literature unit Cloudary had to be were pulled as well, again due to weak investor sentiment. These smaller US companies have been hit not only by that weak broader sentiment, but also by more specific concerns about Chinese firms’ accounting practices following a series of accounting scandals earlier in the year. Companies that have gone forward with offerings this year have hardly offered any reassurance. Shares of Renren (NYSE: RENN), a leading Chinese social networking site, now trade at about a quarter of their IPO price since their May offering; while shares of video sharing site Tudou (Nasdaq: TUDO), which made its IPO in August when sentiment was already weak, have sunk by more than half from their IPO price even after the company reported a surprise third-quarter profit. The combination of confidence crisis and broader weak market sentiment is no doubt behind the huge losses for US-listed China stocks. That said, investor sentiment is notoriously cyclical, and I would expect people to rediscover the big potential of China stocks sometime next year, probably around the second quarter, at which time we should see names like Haitong and perhaps even Cloudary or Xunlei make a second try at an IPO. In the meantime, braver investors with money to spare could position themselves for some nice returns by buying shares now ahead of the next uptick.

Bottom line: Haitong Securities’ pulling of its IPO reflects a dismal IPO environment that should be near bottom, with sentiment likely to pick up for China plays around the second quarter of 2012.

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