IPOs: China Film, Babytree Eye China; Lending Firm Opts for NY

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Bottom line: IPOs by China Lending, China Film and Babytree should all do relatively well, and their diverse listing destinations reflect the growing choices available to Chinese companies for public offerings.

Babytree raises 3 bln yuan

A trio of mid-sized entrepreneurial companies are in the IPO headlines, including one headed for New York, another opting for Shanghai and a third eyeing a possible listing on Hong Kong’s underutilized board for high-growth companies. The first of the trio, which will make its trading debut this week in New York, comes from micro lender China Lending Corp (Nasdaq: CLDC). The second comes from China Film Co, the nation’s largest movie distributor; and the third comes from baby products seller and online community operator Babytree, which has just raised a nifty 3 billion yuan in pre-IPO funding.

The very different listing paths being eyed by these 3 companies reflect a diverging IPO strategy within China’s corporate sector over the last 2 years. Many venture-funded companies like China Lending Corp and Babytree would have previously gone to New York due to easier market access and a big field of similar listed “China concept stocks”.

But a growing number of those companies are now looking to list in China and also Hong Kong, thanks to the launch of an enterprise-style board in the former and growing appetite for venture-backed Chinese companies in the latter. Still, New York does remain an attractive option for some of the companies due to its relative maturity and stability, and stricter regulation that gives investors more confidence about companies’ credibility.

Those factors were likely an important consideration behind China Lending Corp’s decision to list on the Nasdaq, with trading in its American Depostiary Shares (ADSs) set to begin on Friday. (company announcement; English article) China Lending has already priced its ADSs at $10, and will raise a relatively modest $60 million through the offering.

I haven’t seen any financials on China Lending, so can’t really comment on its prospects. But it’s based in the interior and relatively poor Xinjiang region, meaning it will probably get strong government support. And its operation as a private company could also give it an advantage in lending to entrepreneurial companies, since most of China’s traditional banks are state-owned and typically only lend to other state-owned enterprises.

IPO Blockbuster

Next there’s China Film, which is planning a much larger IPO in Shanghai with an aim of raising about 4.1 billion yuan ($612 million). (English article) The company has made its initial filing for an IPO with the Shanghai Stock Exchange, in what would be the largest such offering of all time by a Chinese entertainment company.

Unlike China Lending, China Film has more of a state-run background, since the distribution of films in China is still tightly controlled by Beijing. The company was traditionally a movie distributor, with more than half of the market, but wants to get into the film-making business as well. That’s been a recent trend as companies look to profit on China’s booming box office, and I expect this offering could do quite well as an entertainment concept play.

Finally there’s Babytree, which has just raised the 3 billion yuan and said it is formally dismantling its VIE corporate structure that was traditionally used by companies looking to list in New York. (English article; Chinese article) Following the new fund-raising, Babytree is saying it wants to either list in China, or possibly on Hong Kong’s Nasdaq-style Growth Enterprise Market.

This particular offering doesn’t look especially ground-breaking, though it would probably be attractive as a first-of-its-kind to list, operating an online community offering products and services for new parents. Again we’ll have to wait to see some financials before commenting further. But assuming the company is growing quickly and profitable, which both seem likely, I expect the offering could see strong demand in a listing likely to come within the next 12 months.

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