IPOs: Huishang Fizzles In HK, Tarena Eyes NY
After a roaring few weeks in late October, the market for offshore Chinese IPOs has lost some momentum in the last 2 weeks as investors return their focus to important issues like company quality and growth prospects. In the latest sign of the market’s fickle nature, Chinese bank Huishang (HKEx: 3698) has sputtered in its trading debut in Hong Kong, boding poorly for other mainland banks lining up to list there. Another piece of IPO news is less ominous, with media reporting that education services firm Tarena is preparing to list as early as next year, most likely in New York. While that news is relatively neutral, reports are also pointing out that one of Tarena’s top executives recently joined the company from NQ Mobile (NYSE: NQ), the former New York-listed Chinese high flyer whose stock has tanked recently on doubts raised by a short seller.
It’s probably too early to say if the brief window of IPO euphoria with the successful late October listings of Internet companies 58.com (NYSE: WUBA) and Qunar (Nasdaq: QUNR) has officially closed. My guess is that some investor skepticism has returned since the NQ short seller attack 3 weeks ago, and new listing candidates will have to work extra hard to convince markets that their stocks are good long-term bets. But that said, I do still believe that quality companies with good growth prospects can launch strong IPOs over the next month. One important factor to watch will be which investment banks are underwriting each offering, as top names like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) seem to be having an easier time attracting investors in the current climate.
Let’s begin this IPO round-up with a look at Huishang, which is one of the first in a long line of Chinese banks preparing to list in Hong Kong. All of these Chinese banks would probably prefer to list in Shanghai or Shenzhen, where their names are more familiar and investors are less likely to closely examine their financial records. But a year-long freeze on new IPOs in China has forced these cash-hungry banks to look to Hong Kong as their alternate choice for raising capital.
Huishang raised $1.2 billion in the biggest bank IPO for Hong Kong in 3 years, and then saw its shares rise about 2 percent on their first trading day. (English article) The debut followed an equally lackluster launch for another mainland lender, Bank of Chongqing (HKEx: 1963), which listed its shares last week. Frankly speaking, I personally wouldn’t invest in any regional Chinese bank, as most probably have huge amounts of hidden bad debt from dubious loans made to local governments during the global financial crisis. Other banks looking to list in Hong Kong include Bank of Shanghai and CGB (previous post), and I would expect all to meet with equally lukewarm receptions.
In the other IPO news, media are reporting that Tarena is planning a share sale as early as next year. (English article) There’s not much detail in the reports, except to say Tarena provides training services for software engineers and is backed by Goldman. The reports also point out that Tarena recently hired former NQ Mobile CFO Ji Suhai to lead the IPO, though Ji said his move was unrelated to the recent short-seller attack that caused NQ Mobile shares to lose half of their value.
Any Tarena IPO looks a bit far away, and I suspect the company will wait to see how market sentiment evolves through the first quarter of next year before making any more concrete moves. In the meantime, the weak Huishang and Bank of Chongqing debuts, coupled with the recent weak reception for an upcoming IPO by Internet lottery firm 500.com in New York (previous post), certainly don’t seem to bode too well for new offerings in the next few weeks.
Bottom line: Investor sentiment has turned more cautious towards offshore IPOs by Chinese firms, but quality companies with good growth prospects can still hope to attract strong interest.
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