HK Nets Another Internet IPO With Snail
Yet another Chinese Internet firm is reportedly eying a Hong Kong listing, with word that mid-sized online gaming firm Suzhou Snail Digital is weighing an IPO to raise up to $100 million. This latest news must be worrisome to the 2 major stock markets in New York, which traditionally were the preferred listing venue for Chinese Internet companies and other start-up tech firms. Most of China’s biggest Internet firms now trade in New York, including search giant Baidu (Nasdaq: BIDU) and online travel services leader Ctrip (Nasdaq: CTRP). But the Nasdaq and New York Stock Exchange have lost some of their appeal over the last 2 years, amid waning interesting by investors and a crackdown against Chinese firms by the US securities regulator following a series of accounting scandals.
The frosty climate in New York has led a small but significant series of Internet firms to publicly state they are looking at listings in Hong Kong, where investors have a better appreciation of Chinese firms and regulatory oversight isn’t as heavy. The aptly named Snail Digital has become the latest company in this slow but significant trend, with plans for an IPO as early as next year, according to media reports citing unnamed sources. (English article)
There’s not much more detail in the reports, except the $100 million figure that would make the offering one of the biggest by a Chinese Internet firm in Hong Kong. The reports also say the company is in the process of hiring investment banks, indicating it’s serious about moving ahead. The fact that Suzhou Snail is considering Hong Kong also means it has probably been profitable since at least 2011, since firms can only list on the Hong Kong Stock Exchange after showing 3 consecutive years of profitability.
Alibaba.com, the B2B website of e-commerce leader Alibaba, raised $1.5 billion in a 2007 Hong Kong IPO, though the company privatized last year due to lack of investor interest. After that, the next biggest IPO by a Chinese Internet firm in Hong Kong came from leading game and social media company Tencent (HKEx: 700), which raised $200 million when it went public in Hong Kong in 2004. Since then Tencent’s shares have soared 90-fold, making it China’s most valuable Internet company with a market capitalization of $80 billion.
Suzhou Snail’s Hong Kong listing plan is the latest in a small but growing series of similar plans. Media reported last month that another tech firm, export software maker Skysoft, was planning a Hong Kong IPO to raise up to $60 million. (previous post) Earlier this year, media also reported that specialty e-commerce site Cogobuy wanted to make an IPO in Hong Kong next year. (previous post)
Cogobuy, Skysoft and now Suzhou Snail all look like companies that would have traditionally gone to New York for their public offerings, but are now opting for the more investor-friendly Hong Kong. But the biggest test of Hong Kong’s growing popularity for Chinese tech and Internet firms could come later this year, as momentum builds for a public listing of Alibaba that could raise $10 billion or more and value the firm at around $80 billion.
Alibaba is keeping mum about where it will list, though nearly everyone believes it will be either New York or Hong Kong. But a growing number of unsourced reports say that Alibaba is strongly leaning towards Hong Kong for the offering, which would mark a major triumph for the local stock exchange that could then bill itself as host for China’s 2 largest Internet firms.
The US will still remain somewhat attractive going forward, especially for companies that can’t meet the Hong Kong requirement for 3 years of profitability. But look for a growing number of Chinese tech and Internet companies to list in Hong Kong in the next few years, at least until investor sentiment in the US becomes more positive.
Bottom line: Suzhou Snail’s IPO plans reflect a growing preference by tech firms to list in Hong Kong as sentiment in New York remains cool.
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