FUND RAISING: Investors Give Cold Shoulder to JD, Yintech

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Bottom line: A sell-off of JD.com shares after announcement of a big bond issue and a lukewarm debut for Yintech’s New York IPO reflect growing investor skepticism towards US-traded Chinese stocks due to the nation’s economic slowdown.

JD shares tank on mega bond sale

China startups may be all the rage among private equity investors in Asia, but they’re quickly losing their luster for smaller US-based investors. That seems to be the bottom line, following a lukewarm reception for the new IPO by a metals trading platform operator called Yintech (Nasdaq: YIN), and a plunge in shares of e-commerce giant JD.com (Nasdaq: JD) after it announced a major new fund-raising plan.

Neither of these stories surprises me too much, since China’s economy is standing on the cusp of a major slowdown that is likely to severely crimp all companies’ growth. But that said, it’s also noteworthy that private equity investors are still pumping billions of dollars into companies like Ant Financial and Didi Kuaidi even as sentiment cools on Wall Street.

This growing divide probably owes to the fact that the private equity is chasing companies that aren’t yet public, and these big investors are hoping to make some quick profits on the expectation that valuations will rise before upcoming IPOs for companies like Ant. By comparison, companies that are already listed are unlikely to see such valuation growth, and could even see their values decline as profits stagnate or contract with China’s economic slowdown.

We’ll begin with JD.com, which doesn’t have to worry about contracting profits since the company has never been profitable since it first listed in New York 2 years ago. JD’s shares have been all over the map since that offering, doubling at one point from their IPO price of $19 even as the company’s losses continued to grow.

The company’s shares have fallen 15 percent in the last 2 weeks, much of that in the last few days, and now trade at just $25 after JD announced plans to raise $1 billion through a new bond offering. (company announcement; Chinese article) JD actually joins most of China’s top Internet companies in announcing similar fund-raising plans, as they take advantage of positive sentiment among banks and private equity buyers to refinance debt at favorable rates.

But such fund-raising risks alienating existing investors, especially for money-losing companies like JD.com. One report points out that JD has lost $4.4 billion in market value in the days after announcing its bond sale plan, or more than 4 times as much as it will raise from the new bond issue. That shows that New York investors are quite pragmatic about these companies’ growth prospects, and will probably be cautious about buying their shares until China’s economic picture becomes clearer.

Indifference to Yintech

Next there’s Yintech, operator of an online metals trading platform, which earlier this week set a price range of $12.50 to $14.50 for its American Despostiary Shares (ADSs), as it became the first major Chinese company to make a New York IPO this year. (previous post) It ultimately priced those shares in the middle of that range at $13.50, and saw them close unchanged on their first trading day. (English article)

Yintech sold 7.5 million ADSs in the offering, meaning it raised just over $100 million from the IPO. The company actually looks relatively attractive in principal, since it combines a Chinese love of precious metals and trading in almost anything, with a high-tech online platform that lets small investors bet on the prices of those metals.

But in this case, the offering was probably hit by waning activity in China’s domestic stock markets, which suffered a major sell-off at the beginning of the year that has cooled interest in trading among smaller retail investors. I wouldn’t expect too much from Yintech shares in the near-term, though its profits could accelerate if we see any strong price gains in the global markets for gold, silver and other precious metals.

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