Cloudary Turmoil, Where Are The IPOs? 盛大文学高层震荡 IPO计划何去何从？
New reports of turmoil at Cloudary, the literature unit of online entertainment firm Shanda, mean the company’s highly anticipated New York IPO may be delayed until the situation there settles. From a broader perspective, the absence of any New York IPO news from Cloudary or any other Chinese firms so far this year comes as quite a surprise to me, as I was previously predicting a mini-flood of such offerings following nearly 2 years of inactivity due to negative market sentiment. But instead of this steam of new offerings,the opposite has happened as a growing number of firms announce plans to privatize and de-list their shares from New York.
All of this raises the interesting question of whether the US has lost its appeal as a place for entrepreneurial Chinese firms to raise cash and list their shares. I suspect that over the longer term the answer to that question is “no”, although many smaller Chinese firms are clearly having doubts about the appeal of US listings in the present climate.
Let’s take a closer look at Cloudary, which was one of my top picks to lead the stream of new Chinese IPOs in New York in the first half of this year. Media are reporting that a major conflict of unspecified nature erupted at the company several days ago, resulting in the sudden departure of some 30 mid- to high-level executives. (Chinese article) Cloudary CEO Hou Xiaoqiang is quoted saying the exodus won’t affect the company, which had reportedly restarted plans for a New York IPO.
Cloudary and a number of other Chinese start-ups have been aiming to list in the US for as long as 2 years, but suspended their plans after a series of accounting scandals led to a deep freeze in investor sentiment. Cloudary turned profitable in the middle of last year, and Chinese media reported in November that the company had hired Merrill Lynch to underwrite its New York IPO set to take place this spring. (previous post) If those reports were true, then this latest sign of major management turmoil certainly doesn’t look like a good sign and could easily derail the IPO plan for at least a few more months.
Meantime, the market has remained surprisingly quiet more than a month after the Chinese New Year, with no reports of imminent New York IPOs by Chinese firms. Several of the other most-mentioned candidates looking to make new offerings include online clothing retailer Vancl, as well as the online video business of web portal Sohu (Nasdaq: SOHU). Vancl may be waiting until it turns profitable to make such an offering, which it said last month could happen later this year. (previous post) And media reported earlier this month that Sohu was actually considering a plan to privatize, although the company quickly issued a statement denying the reports.
At the same time, Simcere Pharmaceutical and Camelot Information Systems (NYSE: CIS) both announced plans to privatize and de-list their US-traded shares this week, and online game operator The9 (Nasdaq: NCTY) was also rumored to be weighing a similar plan. (previous post)
So what does all this mean for the New York IPO outlook in 2013? This sudden series of developments means we’re likely to see the field of IPO candidates narrow considerably, with only larger profitable companies look to list in the US. That could mean we won’t see a big flood of new companies making offerings this year, but that the 4 or 5 ones that ultimately do make IPOs will probably be high-quality firms each looking to raise $100 million or more.
Bottom line: 2013 is likely to see 4-5 larger, profitable Chinese firms list in the US, with smaller companies abandoning the market due to high costs and weak investor interest.
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