IPOs: LightInTheBox Files, China Auto Reawakens
After nearly half a year of inactivity, signs of a spring for China IPOs in New York are finally appearing with the first public filing by an online retailer named LightInTheBox. At the same time, auto rental specialist China Auto Rental has just formed an important new tie-up with global peer Hertz (NYSE: HTZ), leading media to speculate the company could soon restart its IPO that it aborted more than a year ago due to weak market sentiment. I have to say that both of these potential IPOs caught me a bit by surprise, as neither was the kind of exciting deal I was looking for to rekindle interest in the moribund market for new Chinese listings.Let’s start with a look at LightInTheBox, an e-commerce firm which I’ll candidly admit I’d never heard of before reading about plans for its IPO to raise up to $86 million with a listing on the New York Stock Exchange. (English article; Chinese article) Perhaps one of the reasons I’ve never heard of the company is because it is focused on the market for buyers outside China.
A look at the company’s website gives little or no hint that LightInTheBox is actually based in China, even though its headquarters are in Beijing. The company sells to customers in 10 global markets, all of them in the west except for Brazil. The only Chinese on the site is in the section where companies can sign up to become LightInTheBox suppliers. Thus one finally realizes that LightInTheBox is trying to buy goods cheaply from locally based Chinese suppliers, and then sell those directly to customers in the west.
The model sounds intriguing if not too exciting, since most Chinese e-commerce companies to date have been focused on the highly competitive domestic market. LightInTheBox seems to be making steady progress in its business, with revenue last year rising 70 percent to $200 million. It is still losing money, but the loss narrowed sharply last year to $2.3 million from $25 million in 2011.
I strongly suspect that LightInTheBox is already profitable, and will announce either shortly before or after its IPO that it earned a profit in the first quarter of this year. The company has smartly set its fund-raising goals rather low with the $86 million target, meaning it shouldn’t have too much difficulty finding investors. If all goes according to plan, I could see LightInTheBox shares pricing near the top of their range, and even posting some modest gains on their trading debut.
That would follow in the footsteps of web firms YY (Nasdaq: YY) and Vipshop (NYSE: VIPS), China’s only 2 major companies to list in the US last year due to weak demand following a yearlong confidence crisis after a series of accounting scandals. Both have done quite well since then as investor sentiment finally starts to improve, with Vipshop shares up more than 300 percent from their IPO price.
From LightInTheBox, let’s take a quick look at China Auto Rental, which filed to make a New York IPO early last year but had to abandon the plan due to dismal market sentiment. (previous post) Now the company has announced a new tie-up with Hertz, which will see China Auto take over Hertz’s China operations and Hertz purchase 20 percent of China Auto. (Chinese article)
One report on the tie-up cites a China Auto investor saying the company is in no hurry to try to list again in the US, but that hasn’t stopped media from speculating that a new bid could be coming soon. China Auto was losing money and reportedly in need of cash when it aborted its IPO plan last year, so this new tie-up does seem more like a cash-raising move rather than a prelude to an imminent IPO. Still, if the company can turn profitable soon and the LightInTheBox IPO does well, I could see China Auto also potentially restart its own public offering later this year.
Bottom line: LightInTheBox’s IPO is likely to price and debut strongly, boding well for Chinese companies looking to list in New York this year.
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