IPOs: New China Board Nets iQiyi, Ant Financial; Buyout Shares Sag
Bottom line: Shanghai will bid aggressively for Chinese tech firms to list on a new Nasdaq-style board planned for the city, while shares of companies privatizing from New York will continue to sag in sync with China’s stock market sell-off.
A new Shanghai-based Chinese board that aims to compete with Wall Street for new high-tech listings is moving closer to reality, with reports that Baidu’s (Nasdaq: BIDU) iQiyi online video service and Alibaba’s (NYSE: BABA) affiliated Ant Financial unit will be among the exchange’s inaugural listing candidates. A separate report also says that another Alibaba-affiliated company, soccer team Evergrande Taobao, will also list on the board, which is being referred to right now as the new strategic industries board.
Meantime in New York, the current week looks set to end with just a single privatization announcement for a US-listed Chinese firm, a sharp slowdown from the 20 earlier offers in the month of June. In this case the abrupt slowdown is at least partly due to the plunge in China’s stock markets this week, and we’re unlikely to see any more offers until the situation stabilizes.
Let’s begin with the new strategic industries board, which I haven’t written about before since there was never much concrete to say. The new board is Shanghai’s answer to the wildly popular Nasdaq-style ChiNext board, which was launched in Shenzhen in 2009 and hosts many of China’s most exciting private high-tech and media companies like online video firm LeTV (Shenzhen: 300104) and independent filmmaker Huayi Bros (Shenzhen: 300027).
One new report cites an unnamed source saying that Ant Financial, iQiyi and popular restaurant ratings site Dianping have all been selected to list on the exchange. (Chinese article) Evergrande Taobao’s listing plan was disclosed in a Hong Kong stock exchange filing by the company’s other parent, real estate developer Evergrande (HKEx: 3333). (English announcement; Chinese announcement)
One report cites Ant Financial and Dianping both saying they have no current plans to list, which is consistent with their previous statements. (Chinese article) The Evergrande statement simply says the company filed to list its soccer team and received approval. All of this seems to say that Shanghai is moving aggressively with plans for the board, and is pressuring big-name companies to apply for permission to list there even if they have no immediate IPO plans.
A Work in Progress
These noises do seem to indicate that the Shanghai stock exchange wants to move ahead quickly with plans for the board, though an actual launch is still probably more than a year away. The flurry of activity also indicates that the Shanghai board will bid aggressively to lure names that formerly would have gone to the US or possibly Hong Kong, and could also try to attract some of the many companies that want to de-list from New York
On that topic, the current week is about to end with online game developer KongZhong (Nasdaq: KZ) as the only company to announce a privatization at the very beginning of the week. (previous post) That’s not too difficult to understand, since a sell-off that began last week on China’s stock markets has continued into the current week, with the result that the markets are well into bear territory following a massive run-up over the previous year.
A quick look at some of the many companies to announce buy-out plans over the last month shows that many of their shares sagged during the current week, taking them further away from their buy-out prices. The gap varies widely, with medical device maker Mindray Medical (NYSE: MR) now trading at a modest 6 percent below its buyout price, while China Information Technology (Nasdaq: CNIT) is trading 26 percent below.
I’ve previously said that much of the money funding these buyouts is speculative and linked to China’s stock market rally that is now rapidly going into reverse. If the downward trend continues, which seems likely, look for the gap between buyout bid prices for New York-listed companies and actual trading prices to widen, and the strong possibility that many of these deals will collapse.
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