IPOs: Cinda Hot, Perfect World Not, Alibaba In London
In an unusual day for overseas traded Chinese firms, we’re getting interesting listing news bits from 3 of the world’s top financial markets, with companies making headlines in New York, London and Hong Kong. In New York, we’re hearing that unappreciated online game operator Perfect World (Nasdaq: PWRD) may be considering a privatization bid; in Hong Kong, Cinda, a manager of non-performing state-run assets, is getting a strong reception in the run-up to its large IPO; and last but not least, visiting British Prime Minister David Cameron has made a person appeal to e-commerce giant Alibaba to make its highly anticipated IPO in London.
This flurry of news probably owes to a number of factors, led by a seasonal one. The reality is that the period between Christmas and Chinese New Year is typically a “dead zone” for offshore IPOs by Chinese firms. That means that any Chinese company that wants to make an overseas IPO before April 2014 needs to do so quickly, as the window for such offerings will informally close about a week before Christmas and won’t reopen until March. Other factors are mostly company-specific, which I’ll discuss shortly with a look at each news bit.
We’ll start with Perfect World, which is reportedly weighing a privatization just a week after rival online game firm Giant Interactive (NYSE: GA) announced a similar plan. (English article; previous post) The report I read cites industry sources, which are most likely investment banks or private equity firms that are trying to convince Perfect World to go private. Their argument is a familiar one, namely that Perfect World’s US-listed shares are unappreciated and the company doesn’t need access to capital markets that it gets from a public listing.
We’ve seen a number of similar reports this year for potential privatizations that ultimately didn’t happen. While privatization makes sense for many of these firms, one factor that leads many to reject such an option is simply the face element. Being a publicly traded company is very prestigious, and going private represents a certain loss of face for many of these firms. Thus many may choose to remain public, especially ones where the company founder plays a big role at the company like Perfect World. Thus, I doubt we’ll see a privatization bid in this instance.
Moving on, separate media reports are saying the upcoming Hong Kong IPO for Cinda has gotten a very strong reception and is expected to price at the top of its range. (English article) That means that Cinda could raise around $2.5 billion, in what would be Hong Kong’s biggest IPO in an otherwise lackluster year.
Cinda is the strongest of China’s “bad asset managers”, companies set up by Beijing to dispose of non-performing assets from state-owned firms, and thus it’s not too surprising the offering is getting a strong reception. Accordingly, look for Cinda’s shares to make a strong debut, and for the big global fund houses to buy up its shares as an interesting alternative to traditional Chinese financial plays like banks and brokerages.
Lastly, let’s look quickly at Alibaba, more for the curiosity factor than because there’s any real chance the company will chose to list in London. Media are reporting that Britain’s Cameron took time out during his trip to China this week to pay a personal visit on Alibaba founder Jack Ma, and lobbied Ma to seriously consider listing his company in London. I have to applaud Cameron for his efforts, especially since he’s quite a busy man. But the chances that Alibaba will make its multibillion-dollar IPO in London are just about zero, and I still expect that Alibaba will eventually reach a compromise that will allow it to list its shares in Hong Kong sometime next year.
Bottom line: Perfect World is unlikely to privatize due to the face factor, Cinda’s IPO will post a strong debut, and Alibaba’s chances of listing in London are zero.
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