Bottom line: ZhongAn’s and Qudian’s IPOs are likely to price and debut strongly over the next few weeks on excitement about China fintech, while Best’s will debut to indifference following the slashing of its size.
ZhongAn, Qudian IPOs look hot
Three companies likely to list in New York and Hong Kong by the end of this month are setting the tone for what’s set to be a busy fall for similar new offshore offerings from Chinese companies. Two of those are coming from the hot fintech sector, where online microlender Qudian and online insurance seller ZhongAn appear to be drawing strong interest in IPOs that could each raise north of $1 billion. But logistics company Best Inc is moving firmly in the other direction, with the announcement that it has just slashed the size of its fund-raising plan by nearly half.
Neither of these themes is completely surprising, since fintech has become a hugely lucrative area in China due to the relatively greenfield nature of the sector. Until only very recently, nearly all financial services in China were dominated by state-run companies, which aren’t exactly known for their innovation and embrace of technology. That’s also partly true for logistics, though in that case the industry has quickly become a bit of a bloodbath plagued with cutthroat competition among around 10 major players. Read Full Post…
Bottom line: Jumei could formally abandon its stalled buyout plan soon, putting more downward pressure on its stock, while iKang needs to enter serious negotiations with two bidders for the company.
Jumei, iKang under pressure over stalled buyouts
Ever wonder what happened to a handful of buyout plans for US-listed Chinese companies that were announced more than two years ago but never got completed? That’s certainly not a question that keeps most of us up at nights, but it’s suddenly popping into the headlines with a series of scathing letters from a minority investor called Heng Ren, which is criticizing two of the unfinished deals.
Specifically, Heng Ren is blasting online cosmetics seller Jumei International (NYSE: JMEI) and clinic operator iKang (Nasdaq: KANG), which both announced plans to privatize quite a while ago but have yet to complete those. These aren’t the only two whose privatization plans, which were part of a wave in the first half of 2015, failed to get completed. But most of the others that failed to complete their buyouts, including YY (Nasdaq: YY) and Momo (Nasdaq: MOMO), made specific announcements that they were abandoning their plans. Read Full Post…
Bottom line: Samsung’s new $7 billion investment in a chip expansion in Xi’an should help to earn big government goodwill, which could help position its smartphone division for a rebound in China.
Samsung expands chip chip plant
A major new China investment by chip maker Samsung(Seoul: 005930) is spotlighting just how important the market has become to the company, and South Korean companies in general, and how they are trying to play into Beijing’s agendas to maintain their place at the table. That’s become all the more important lately, as a disagreement between Beijing and Seoul has been costing South Korean companies business in China, as often happens when such political disputes spill out into the business sector.
This particular investment, totaling $7 billion, was obviously in the planning stages long before that dispute broke out earlier this year, involving Seoul’s decision to install a sophisticated anti-missile defense system supplied by the US to counter the North Korean threat. But Samsung’s decision to make its announcement now looks shrewd, as it should win it some goodwill from Beijing at a time when the company’s smartphones face similar struggles in China that they’re seeing in the rest of the world. Read Full Post…
Bottom line: Best Inc is likely to make its New York IPO in the next two weeks, but its shares will price in the middle of their range and debut weakly due to stiff competition in the logistics sector.
Best Inc. raises IPO target
It’s been a quiet year so far for major Chinese IPOs in New York, but all that looks set to change soon with several major offerings coming down the pipeline. One of those is in the headlines as we head into the end of August, with word that Best Inc, also known as Best Logistics, is driving towards a New York offering that will raise up to $1 billion. That deal was first announced in June, so it’s a bit unclear why it has taken so long to jump back into the headlines with this boosted fund-raising target.
Based on what I’m hearing from one of my sources, the US securities regulator is giving extra scrutiny to a group of fintech companies that are all lining up to list in New York before the end of the year, due to the newness of the business type. Best Inc doesn’t really fall into that group, as it’s in a traditional business that’s thriving due to China’s e-commerce boom. What’s more, this company is also backed by e-commerce giant Alibaba (NYSE: BABA), and counts the former head of Google(Nasdaq: GOOG) China as its chief. Read Full Post…
Bottom line: JD.com’s Thai joint venture looks like a smart move into Southeast Asia, though it shouldn’t move too aggressively abroad and instead focus on becoming profitable.
JD.com tests out Thailand
China’s big Internet companies have a pretty varied record for expanding abroad. At one extreme there’s Alibaba(NYSE: BABA), which is using its big cash pot to buy a wide range of assets concentrated mostly in East and South Asia. Tencent(HKEx: 700) is in the middle, mostly buying strategic stakes in game-related companies, while Baidu(Nasdaq: BIDU) appears to have mostly abandoned the market after a few half-hearted attempts at global M&A and trying to open search sites in other countries.
And then there’s Johnny-come-lately JD.com(Nasdaq: JD), which admittedly has a far shorter history and is also the only one of the four leading Internet companies that’s still losing money. But that doesn’t mean that JD doesn’t have cash, and now it appears the company is looking to make its biggest splash abroad to date with the formation of a joint venture in Thailand. Read Full Post…
Bottom line: Baidu could announce a sale of its takeout dining unit to Ele.me by the end of the month, in a smart exit that will leave the industry with two major players and could result in a major write-off for Baidu.
Baidu takeout gets taken out
In a move that’s been a long time coming, media are reporting that search giant Baidu (Nasdaq: BIDU) is on the cusp of a deal to unload its aging takeout delivery service to rival Ele.me, in a deal that would essentially whittle the ultra competitive space down to just two players. This particular development follows quite a typical pattern for Baidu, whose founder Robin Li has discovered he can quickly gain market share in new areas by throwing lots of money at them, sometimes through organic build-ups and sometimes through acquisitions.
Unfortunately, Li also has a strong track record of building up money-burning black holes that become problematic because they consume so much cash that they can’t be easily shut down. He has closed at least one such venture in the past, an e-commerce venture with Japan’s Rakuten. In another instance he sold off his Qunar online travel service to industry leader Ctrip (Nasdaq: CTRP). Read Full Post…
Bottom line: Alibaba’s move into unmanned coffee shops could stand a strong chance of success due to its relative simplicity, while WeChat’s move into Hong Kong convenience stores should also be relatively well received.
Alibaba samples coffee shops
Convenience stores are shaping up as the next battlefield in the wars for supremacy between Internet titans Alibaba(NYSE: BABA) and Tencent (HKEx: 700), at least based on the latest headlines. One of those has Alibaba preparing to roll out an unmanned coffee store concept in its hometown of Hangzhou, while the other has Tencent’s WeChat rolling into Hong Kong in a big way in a new tie-up with 7-Eleven convenience stores.
Starbucks (Nasdaq: SBUX) probably doesn’t need to be too worried just yet about the new threat from Alibaba in coffee shops, though many of the dozens of smaller coffee chains that have set up shop in China these last few years might take note. Likewise, Hong Kong’s incumbent electronic payments service, Octopus, probably doesn’t need to worry just yet either. Read Full Post…
Bottom line: A major altercation between a customer and deliveryman from STO Express underscores the intense competition in the sector, which puts huge pressure on couriers and companies in general.
STO delivers controversy
An incident making the rounds in Chinese media is highlighting just how brutally competitive the parcel delivery business has become — literally. The incident is quite appalling but not really too surprising, with reports that courier STO Express (Shenzhen: 002468) has fired a deliveryman who seriously beat a customer who filed a complaint about him.
This particular incident comes just a day after I wrote about the latest IPO by a parcel delivery firm, Best Inc, which is hoping to raise up to $750 million in New York. (previous post) That IPO is noteworthy because Best is still losing massive money, unlike most of the other courier companies that have made listings, even though the industry’s brutal competition makes it hard for me to believe the others are as profitable as they say. Read Full Post…
Bottom line: Best Inc.’s IPO is likely to price and debut weakly due to its loss-making status and concerns about China’s economy, which could also weigh on an upcoming flurry of fintech offerings in Hong Kong and New York.
Best Inc loads up logistics IPO
After waiting months for this year’s first major New York IPO by a Chinese company, I was surprised to read the distinction looks set to go to a logistics firm backed by e-commerce giant Alibaba (NYSE: BABA). In this case the winner in this race to the IPO gate appears to be a company called Best Inc, with plans to raise a relatively sizable $750 million.
I say I’m surprised because all this time I’ve been waiting for one of a number of financial technology companies, often called fintech, to finally break through the IPO gate with the year’s first big offering. Peer-to-peer (P2P) lender China Rapid Finance (NYSE: XRF) actually took the distinction for first notable IPO of the year with its May listing on the New York Stock Exchange. But that offering was quite small at just $60 million. What’s more, the stock hasn’t exactly been a huge performer since then, and is now trading just slightly above its IPO price. Read Full Post…
Bottom line: JD.com is likely to pass Baidu this week and become China’s third most valuable internet company, while Weibo’s stock is likely to enter a period of correction while it awaits an official live broadcasting license.
JD on cusp of overtaking Baidu
The era of the Internet triumvirate of Baidu (Nasdaq: BIDU), Alibaba (NYSE: BABA) and Tencent (HKEx: 700), often called the BAT, is on the cusp of ending, as up-and-comer JD.com (Nasdaq: JD) looks set to pass Baidu in terms of market value. Meantime, I suspect the end of another era is coming for the soaring Weibo (Nasdaq: WB), which had some of the wind knocked out of its sails following some strict words from China’s heavy-handed regulator.
We’ll focus mostly on the Baidu/JD transition here, as that really does seem to mark a changing of the guard in China’s dynamic Internet sector. That move has seen Baidu experience a longer-term stagnation, as its core search business comes under assault from a few other newer players and it fails to find new revenue sources to offset the loss. On the other hand, JD.com seems unable to do any wrong these days, and is starting to resemble US titan Amazon (Nasdaq: AMZN) in the sense that people don’t really care whether it makes money. Read Full Post…
Bottom line: A spat between Hisense and Sharp over the former’s use of the latter’s brand name spotlights the dangers of relying on such licensing agreements for Chinese companies going abroad.
Sharp sues Hisense over brand agreement
An entertaining battle is rippling through the headlines as we head into mid-week, pitting Taiwanese contract manufacturing titan Hon Hai (Taipei: 2317) against Chinese TV maker Hisense (Shanghai: 600060) in a battle for the Sharp (Tokyo: 6753) brand name. This is essentially the story of two giants with very little name recognition battling for a brand that, somewhat ironically, fell onto hard times as a company but still retains a relatively strong reputation.
Hon Hai is virtually unknown outside of industry circles, but is one of the world’s leading contract manufacturers that is most often cited as producer of iPhones for Apple (Nasdaq: AAPL). Likewise, Hisense is a relatively well-known TV maker in China, but is virtually unknown outside the country, creating obstacles for its global aspirations. Then there’s Sharp, the former Japanese electronics superstar that fell onto hard times was was taken over by Hon Hai last year. Read Full Post…
