IPOs: BOC Aviation Flies in HK, 51Talk Speaks in NY

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Bottom line: BOC Aviation and 51Talk are likely to post moderate performances in their upcoming IPOs in Hong Kong and New York, as investors welcome their growth stories but also show concerns about China’s broader slowing economy.

BOC Aviation IPO gets lukewarm reception

Privatizations and de-listings have been making headlines among overseas listed Chinese firms these days, but a couple of upcoming new IPOs shows that New York and Hong Kong remain attractive options for at least some companies. In the bigger of the 2 plans in the headlines today, Bank of China’s (HKEx: 3988; Shanghai: 601398) BOC Aviation unit has filed updated plans for its IPO first announced in March, which includes a final pricing. The other deal has English language instruction specialist 51Talk filing to make a New York IPO to raise up to $100 million.

This latest pair of deals in some ways reflect the constant state of uncertainty in China’s own stock markets, which is where many of these Chinese companies would prefer to list due to higher valuations. IPOs in China are always tough because of a huge waiting line that means new applicants can wait 2 or 3 years or even more. The problem is worsened by political conservatism that often sees the regulator slow or freeze all new offerings when markets become volatile like they are now.

We’ll begin our offshore IPO round-up with BOC Aviation, whose latest plan looks like a reduction from its earlier one to raise up to $1.5 billion announced 2 months ago. (previous post) Bank of China is spinning off the airplane leasing unit to allow it to operate more independently in the fast-growing space, and I also suspect it will use part of the proceeds to help offset the ballooning bad debt on its own balance sheet.

The latest plan says BOC Aviation will raise up to $1.1 billion by issuing shares priced at HK$42 apiece, though that amount could raise to as much as $1.3 billion if the company also sells all the shares from an overallotment provision. (HKEx announcement) Media reports say the company plans to sell a relatively large 50 percent of its shares to cornerstone investors, and that the stock will start trading next Monday. (English article)

The results look very so-so, since the final fund-raising is quite a bit below the original target. The fact that cornerstone investors account for so much of the fund-raising also seems to indicate that Bank of China had to call on many of its state-owned peers to allow the IPO to proceed. But that said, the aircraft leasing sector is one that’s full of growth potential, and I expect this IPO will post a flat to slightly positive debut when the shares start to trade.

Swimming Against the Tide

Next there’s 51Talk, which could become only the second major offering that I’ve seen by a Chinese firm in New York this year. Industry watchers will know that most of the movement has been in the other direction lately, with some 4 dozen US-listed Chinese firms announcing plans to privatize from New York and return to China since the start of last year.

Despite that, 51Talk seems convinced it will find a friendlier reception in New York. The company is in a rapid growth phase that saw its revenue triple to 72 million yuan ($11.2 million) in this year’s first quarter from a year earlier. The company’s loss also grew sharply over that period, more than doubling to 149 million yuan from 65 million yuan a year earlier.

The only other major company to make a similar offering so far this year was Yintech (Nasdaq: YIN), operator of a metals trading platform, which priced its IPO shares at the top of their range and raised a similar $100 million. Yintech’s shares now trade just slightly below the IPO price 2 weeks after their debut, and it’s quite possible we could see similar trends for both the pricing and trading debut of 51Talk.

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