IPOs Revive With Galaxy, Xinhuanet 银河证券、新华网引领IPO强劲复苏
After a 2012 that most investment bankers would probably prefer to forget, the new year is starting off on a more hopeful note for IPOs with news of offerings from brokerage Galaxy Securities and the website of state-owned media giant Xinhua both generating positive buzz. These latest signs of life follow other similar positive signals in the US late last year, after a commercially-focused social media site named YY (Nasdaq: YY) completed only the second major offering for a Chinese firm in New York during the year and saw its shares perform reasonably well. (previous post) All of this points to a potential rebound for Chinese stocks both inside and outside China in the year ahead, which could unleash a flood of new IPOs by companies that had to wait on the sidelines due to the chilly market last year but are keen to tap financial markets for new funds.
Let’s take a closer look at the latest IPO news starting with Galaxy, one of China’s top brokerages, which has reportedly filed applications in Shanghai and Hong Kong for a dual listing to raise more than $1 billion. (English article) Initial reports over the weekend said the company aimed to raise a combined $1.5 billion, but a more recent report is saying the figure could be even larger at $1.9 billion, double the company’s previous target.
It’s always a good sign when underwriters boost their target offering size, since it means the IPO is getting strong interest from potential investors, even though it isn’t likely to come until the second quarter. The fact that an IPO from a major brokerage is generating such interest is also a positive sign, since Chinese brokerages typically make most of their money from stock trading fees. Thus one could interpret the initial strong interest in the offering as reflecting investor belief that China’s stock markets are set for a rally this year, which would drive up trading volumes and brokerage fees as traders returned to the market after a dismal 2012.
From Galaxy, let’s move on to Xinhuanet, the website of the Xinhua news agency, which has also filed with the Chinese securities regulator for its own IPO in Shanghai. (English article) News of this IPO plan first emerged more than a year ago when media reported the state-controlled news agency, considered by many to be the mouthpiece of the Communist Party, planned to list Xinhuanet in an offering to raise up to 1 billion yuan, or about $160 million.
The offering was later delayed due to weak market conditions that saw the Chinese securities regulator dramatically scale back its approval of new offerings. One of Xinhuanet’s main rivals, the website of Communist Party newspaper People’s Daily, did go ahead and make a Shanghai iPO in April last year, raising 1.38 billion yuan for people.cn (Shanghai: 603000).
People.cn shares jumped 55 percent on their trading debut, and have nearly doubled from their IPO price in the 9 months since they first were listed, undoubtedly boosted by Party stalwarts and investors who believe such a politically well-connected website will inevitably be a strong financial performer. I suspect that Xinhuanet’s IPO will perform well for similar reasons, and it appears that Galaxy could also be a strong performer when it finally makes it to market.
If the signs continue to be positive, look for a strong rebound in IPO activity by Chinese firms in Shanghai, Shenzhen, Hong Kong and New York in the year ahead. That could provide some interesting new options for people who are finally ready to try buying into the China growth story again.
Bottom line: Initial positive feedback for proposed IPOs by Xinhuanet and Galaxy Securities indicate the market for new offerings could be set for a strong rebound in the first half of 2013.
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