IPOs: Wine Seller Jiuxian, Dangdang Write Off New York

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Bottom line: Jiuxian’s decision to list in China and Dangdang’s continued effort to de-list from New York show that low-quality Chinese firms will have difficulty getting attention from US investors and are probably better listing in their home market.

Jiuxian wine cellar to list on China’s OTC

Two news items continue to show a growing distaste for New York by Chinese web firms, led by word that veteran online wine seller Jiuxian has just received approval for an IPO on China’s over-the-counter (OTC) board. The second items comes from veteran e-commerce site Dangdang (NYSE: DANG), whose outspoken CEO is quoted complaining about his company’s low valuation and saying his plans are moving forward to de-list from New York and re-list in China.

The most commonly heard theme to these stories is that Chinese firms can get better valuations in their home market than New York, because their names are more recognized in China. But another theme that gets far less attention is that many of these complaining companies are simply low-quality products whose only real attraction is their “made in China” label.

Thus names like Jiuxian and Dangdang probably wouldn’t draw any attention at all from investors if they were US Internet companies, and their shares might fare even more poorly than they do now. But it’s always more convenient to blame investors for your woes, when perhaps leaders like Dangdang co-founder and CEO Li Guoqing should be looking in the mirror when deciding where to place blame.

Let’s begin with Jiuxian, which looked like a hot company when  it emerged 5 years ago as a first-mover into the hot market for selling imported wines online. But as often happens in China, the company ran into trouble when many others piled into the market, creating stiff competition. At the same time, the country’s wine craze has started to fade, especially with Beijing’s frugality campaign and as China’s economy slows.

As a result, Jiuxian was forced to go to private investors for its seventh funding round in July, and even then raised a relatively modest 500 million yuan ($78 million). (previous post) The company is also showing no signs of becoming profitable anytime soon, losing 287 million yuan last year and 53 million yuan in this year’s first quarter. Against that backdrop, it’s not hard to see why Jiuxian’s investors are probably becoming impatient and have pressured the company to list on China’s low-brow OTC market.

Not Ready for New York

A Jiuxian official revealed his company was approved for the listing on the board, also sometimes called the Third Board, on September 30. (Chinese article) The only other noteworthy thing in the report is a quote by an unnamed company official saying Jiuxian abandoned its earlier plans for a New York listing because its financials would have had difficulty meeting Nasdaq standards. The bottom line is that no investor likes a money-losing company regardless of whether it’s American or Chinese.

That takes us to Dangdang, China’s earliest US-listed e-commerce firm, whose own profit record is also quite spotty. The company was losing money for several years before briefly returning to the black, only to fall back into the loss column recently. Put simply, Dangdang squandered its early lead in China’s booming e-commerce market by failing to innovate, and is now just a tiny player well behind leaders Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD).

But of course CEO Li Guoqing blames his company’s sagging shares on unappreciative investors, and in July Dangdang announced a plan to privatize with an eventual aim of re-listing in China. (previous post) The latest reports cite Li at an industry event detailing how undervalued his company is compared to other Chinese e-commerce firms. (Chinese article)

The reports also cite him saying he is moving ahead with his plan to privatize Dangdang, even though I’ve previously said up to half of the 3 dozen similar buyout offers announced this year could collapse due to volatility on China’s stock markets. Now that the markets appear to be stabilizing, perhaps some of these privatization plans will move forward. If that happens some US investors may be sad to see Dangdang leave, but most probably won’t even notice.

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