Bottom line: Beijing should launch an aggressive campaign to privatize state-owned enterprises, which could cause some short-term pain but will ultimately put the economy on a more stable long-term footing.
Profits tumble at SOEs
The latest profit reports for big state-owned enterprises (SOEs) are coming in for the first 2 months of the year, and the picture isn’t pretty and even looks quite worrisome for China’s thousands of state-owned enterprises (SOEs). New data published late last week showed profits for SOEs tumbled 14.2 percent in January and February combined, as they continued to be plagued by problems like overcapacity and weak demand due to China’s slowing economy.
But one of the biggest problems facing these companies, and one that threatens their long-term survival, is their failure to act commercially, a legacy of China’s planned economy that saw big SOEs historically function as tools for executing government policy. Such a tendency is what, for example, drives steel makers to continue producing at full throttle even when every ton of product they sell adds to losses due to the sector’s huge overcapacity. Read Full Post…
Bottom line: Saohuo’s new angel fund-raising shows that Internet companies with innovative concepts can still attract growth capital, while Great Wall’s scrapping of its new share issue shows China’s new energy car program is sputtering.
Saohuo cashes in on near-expired food
A couple of fund-raising stories are in the headlines as the new week begins, showing that Internet plays continue to be hot while older industries like cars lose their appeal. The first story brought a smile to my face because of its “only in China” nature, and has seen some significant early fund-raising by an e-commerce company that specializes in imported foods that are near their expiration date. The second story has car maker Great Wall Motor (HKEx: 2333; Shanghai: 601633) scrapping its own fund-raising plan due to lack of investor interest in China’s sputtering effort to boost new energy cars.
China’s economic slowdown is putting a definite damper on older industries like steel and autos, where rapid build-ups over the last few years have led to overcapacity and plunging profits. But there’s still plenty of room for growth in the Internet space, as online companies and app makers use innovative concepts and business models to steal business from more traditional players like banks and brick-and-mortar retailers. Read Full Post…
Bottom line: Yum’s China unit is getting a relatively low value due to the country’s unique risks and slowing economy, while YTO’s backdoor listing is likely to get a cool reception due to intense competition in China’s parcel delivery sector.
Yum seeks investors for China unit
Two major IPOs are in the headlines today, one from the more mature fast-food business and the other from the fast-growing but extremely competitive package delivery sector. The first deal has Yum Brands (NYSE: YUM) in talks to sell up to 20 percent of its China division to private equity investors, as it tries to value the unit in the run-up to a highly anticipated IPO. The second has Alibaba-backed (NYSE: BABA) parcel delivery service YTO Express launching a backdoor listing in Shanghai, as it looks for cash to support its operations that are probably losing big money.
Chinese IPOs have gotten off to a slow start this year, both in China and overseas, for a number of reasons. Beijing has banned new domestic offerings for now, in a bid to stabilize markets after a massive sell-off at the beginning of the year. New US listings have also been slow, as many start-ups that previously would have chosen New York now consider listing at home instead. Hong Kong has been the only area with significant new activity, though even there the volatility in China have also depressed the market. Read Full Post…
A new stock exchange being planned for Shanghai ran into unexpected headwinds last week, when signals coming from Beijing hinted at delays or even a possible scrapping of the board aimed at fostering emerging industries. Observers said the setback could deal a blow to fast-growth companies like Baidu-linked (Nasdaq: BIDU) online video service Qiyi.com and Alibaba’s (NYSE: BABA) Ant Financial, depriving them of an important source for new funding to fuel their development.
But the truth is that China already has two major specialty boards to complement its two main boards in Shanghai and Shenzhen. One of those, the ChiNext, is a Nasdaq-style enterprise board launched in Shenzhen in 2009. The other is a 3-year-old Beijing-based over-the-counter style board, often called the Third Board. The older ChiNext specializes in more mature high-growth start-ups, many of which would have previously gone overseas to list, while the Third Board focuses on earlier stage companies that are often still losing money. Read Full Post…
Bottom line: Domestic buyers are likely to comprise most of the investors in Ant Financial’s latest fund raising, though the use of foreign advisers indicates some overseas participation may also be allowed.
Ant Financial raises new funds
Ant Financial, the financial services arm of e-commerce giant Alibaba (NYSE: BABA), is going back to investors for a new mega fund-raising, just a year after taking money from private investors for the first time. But any foreigners hoping to buy into Ant will probably be disappointed, since it appears this new funding round will be mostly open to Chinese institutional buyers. Likewise, Ant’s IPO that could come as soon as next year is likely to happen on one of China’s domestic stock markets, again locking out foreign investors.
Perhaps it’s only fair that foreign investors stand on the sidelines in Ant’s high-growth story, since such investors already have easy access to some of China’s top private companies that are listed overseas. By comparison, domestic Chinese investors have little or no access to shares of Alibaba, Baidu (Nasdaq: BIDU) or Tencent (HKEx: 700), even though that trio of corporate giants derive nearly all their money from China’s booming Internet market. Read Full Post…
Bottom line: Alibaba will come close to meeting the top end of its target of raising $3-$4 billion with a new bank loan, and chances are as much as 50-50 that it will use the funds to make bids for Groupon or the stake of itself held by Yahoo.
Alibaba turns to banks for new mega-loan
After first splashing into the headlines with rumors 2 weeks ago, e-commerce giant Alibaba (NYSE: BABA) has finally announced its latest cash-raising exercise in the form of a syndicated loan worth at least $3 billion. Following that official confirmation, all eyes will now be looking to see if Alibaba can find more demand to boost the loan amount even higher, and for any indication of what exactly it has planned for the new funds.
Let’s begin by looking at the latest reports, which have Alibaba announcing the loan in a regulatory filing. It’s somewhat noteworthy that the high-profile Alibaba hasn’t issued a formal press release about the loan, perhaps because it’s waiting to see where the final amount will top out. But perhaps Alibaba has also finally realized it’s better not to raise expectations too high with a hype-filled announcement, which can ultimately backfire if interest from smaller banks in joining the new lending syndicate is poor. Read Full Post…
Bottom line: The looming completion of buyouts for Qihoo 360 and Mindray Medical points to growing momentum for successful privatizations of other Chinese firms waiting to de-list from New York.
Qihoo, Mindray head back to China
Two of the largest in a wave of privatizations by US-listed Chinese firms have just taken big steps forward, with major new announcements from software security specialist Qihoo 360 (NYSE: QIHU) and medical device maker Mindray (NYSE: MR). One case has Qihoo announcing a formal date for a meeting where shareholders will vote on its plan to privatize the company. The other has Mindray announcing it has formally completed its own buyout plan, and has filed to have its shares de-listed from New York.
It’s quite significant that both of these plans are moving forward now, since China’s own stock markets where both Qihoo and Mindray hope to eventually re-list have been in a state of turmoil these days. That turmoil has seen the main Shanghai index tumble around 20 percent this year, and it’s quite possible that more turbulence lies ahead. Read Full Post…
Bottom line: A New York IPO by drug maker MediTech and Hong Kong listing by BOC Aviation will both meet with tepid reception and weak debuts, the former due to its small size and latter due to lack of big growth potential.
Drug maker China MediTech registers for NY IPO
A couple of IPOs are in the headlines as we head into the new week, led by a relatively sizable listing plan by drug maker China MediTech that could be the first significant new offering in New York this year by a Chinese firm. Meantime, Bank of China (HKEx: 3988; Shanghai: 601398) is also announcing plans to spin off and list its airline leasing unit, marking its latest asset sale as China’s banks scramble to raise cash to cushion their rapidly crumbling balance sheets.
Each of these listing stories is a bit different, reflecting the big differences between MediTech, a private company controlled by Hong Kong billionaire Li Ka-shing, and Bank of China, one of China’s big 4 state-run banks. MediTech’s choice of New York over Hong Kong probably reflects Li Ka-shing’s recent bearish stance on China, and also highlights the relative stability that New York offers over Hong Kong and China. Bank of China’s choice of Hong Kong reflects the preference by big state-run companies to make overseas listings in the former British colony, and Bank of China is itself also listed there. Read Full Post…
Bottom line: Foreign investors will give China bank IPOs a cold shoulder for the rest of this year due to concerns of a bad debt crisis, potentially driving valuations even lower than their already depressed levels.
Zheshang Bank delays IPO plan
A couple of banking stories are spotlighting the rapidly fading attraction of Chinese lenders to foreign investors, who fear the banks are standing on the cusp of a bad loan crisis fueled by China’s cooling economy. The first item has Citigroup (NYSE: C) selling its 20 percent stake in China Guangfa Bank for $3 billion, after original plans to list the bank collapsed due to lack of investor interest. The second item has China Zheshang Bank also delaying plans for a $1 billion Hong Kong IPO for similar reasons.
Both developments come as Chinese banks listed in Hong Kong now trade at extremely low multiples due to concerns about their individual health and China’s broader economic slowdown. Leading lender ICBC (HKEx: 1398; Shanghai: 601398) now trades at a paltry price-to-earnings (PE) multiple of just 5, while Bank of China (HKEx: 3988; Shanghai: 601398) trades at an even lower 3.8. Read Full Post…
Bottom line: New complaints about deceptive and unfair practices by short seller Andrew Left and online cosmetics seller Jumei have some validity, but such actions are ultimately just forms of normal market behavior.
Jumei under fire for low offer
A couple of headlines are shining a spotlight on the recent wave of privatizations and an older flurry of short-seller attacks involving offshore-listed Chinese companies, amid accusations of unfair practices and market manipulation. One headline has Hong Kong’s securities regulator bringing a case against notorious short seller Andrew Left and his company, Citron Research, claiming they knowingly published false information about locally listed Chinese real estate developer Evergrande (HKEx: 3333). The other is seeing several smaller US fund managers protest the low value of a new privatization offer for online cosmetics seller Jumei International (NYSE: JMEI).
These cases share the common theme that each is market driven, and thus each seems perfectly acceptable. Short sellers are famous for issuing misleading information in a bid to drive down a company’s share price, but can only succeed if other investors believe them. Similarly, most of the privatization offers for Chinese companies over the last year offer healthy premiums to the latest trading prices, even if those prices are down sharply from earlier IPO levels. Read Full Post…
Bottom line: Meituan-Dianping’s IPO is likely to raise more than $2 billion and should get a strong reception when it comes, most likely by mid-year in New York, while ZTO Express’ $1-$2 billion IPO will get a cooler reception due to its steep losses.
Meituan-Dianping eyes IPO
After a quiet start to the year, the market for offshore Chinese IPOs is slowing coming to life with word of 2 listing plans that should both top the $1 billion mark. One would see leading group buying site Meituan-Dianping list, most likely in New York or possibly Hong Kong, in a deal that would probably raise at least $2 billion. The second is also Internet-related, and would see parcel delivery giant ZTO Express also raise up to $2 billion in a New York IPO.
Perhaps not surprisingly, both of these companies are losing money despite their position as industry leaders. That’s because competition has been cut-throat in both spaces, especially in the parcel delivery business that supports China’s booming e-commerce sector. Meituan and Dianping were also locked in heated competition before they merged late last year to face the current company, which still faces stiff competition from 2 of China’s leading Internet companies, Baidu(Nasdaq: BIDU) and Alibaba (NYSE: BABA). Read Full Post…
