Jumei Eyes $600 Mln IPO, JD’s Liu Eyes Rich List
The pace of new Internet IPOs coming out of China continues to build up steam, with word that yet another e-commerce company has hired investment banks for a mega offering to raise up to $600 million. The move by Jumei.com, an online seller of cosmetics, comes just a week after JD.com, China’s second largest e-commerce firm, made its first public filing for a New York IPO to raise up to $1.5 billion. A new separate report is now saying that JD.com founder and chief executive Liu Qiangdong could enter the realm of China’s richest men following the offering, with his stake in the company expected to give him a net worth of up to $7 billion.
A separate report earlier this week cited unnamed investment banking sources saying a flood of Chinese companies were lining up for New York IPOs, aiming to take advantage of a sudden window of positive sentiment that opened at the end of last year. (previous post) The report said as many as 30 Chinese companies could try to make US listings this year, leading me to predict the market could quickly become saturated and lose momentum in the second half of the year. What’s more, leading e-commerce firm Alibaba is likely to make a multibillion-dollar IPO in Hong Kong in the second half of the year, further sapping strength and international investor dollars from the market.
Against that backdrop, it’s not surprising that JD.com was moving ahead quickly with its IPO plan, making its first public filing earlier this month for what would be the first major offering by a Chinese firm in New York this year. (previous post) Now media are reporting that Jumei is eying another major offering, and has hired investment banks Goldman Sachs and Credit Suisse to underwrite the deal. (English article; Chinese article) Generally speaking the hiring of such underwriters marks the first major step in an IPO, kicking off a process that typically takes anywhere from 4 to 6 months.
In this case Jumei’s plan looks quite ambitious. All of the major IPOs from late last year were far smaller, generally raising sums in the $100-$200 million range. Of course it’s also worth noting that underwriters set modest goals for those offerings due to uncertain sentiment at the time, and that nearly all ended up raising their targets after discovering strong investors interest. All of the companies to debut during that time have posted strong gains in their first few months as public companies, with online lottery ticket seller 500.com (NYSE: WBAI) posting some of the best gains as its shares more than tripled.
Meantime, media are reporting that JD.com’s talkative founder Liu Qiangdong could get a net worth of anywhere from $4.7 billion to as much as $7 billion after his company’s IPO, based on his holdings of 23.7 percent of JD’s stock. (Chinese article) The upper end of that range would make Liu one of China’s 10 richest men.
From my perspective, the most interesting element to all this is the sudden jump in fund raising targets, and also in valuations. The report on Liu Qiangdong says its calculations are based on a JD.com market value of $20-$30 million, a lofty figure for a company that was reportedly worth about $7 billion just a year ago. The $600 million fund raising figure for Jumei also implies a probable estimated market value of $3 billion or more, since companies seldom put more than 20 percent of their shares into their IPOs. These numbers all look quite aggressive and even somewhat inflated to me, reinforcing my previous assertion that all the new fund-raising could quickly result in investor fatigue and share stagnation for most of these companies by the second half of the year.
Bottom line: Jumei’s ambitious fund raising plans and aggressive valuations for JD.com reflect building froth in new China Internet IPOs, which is likely to lead to investor fatigue in the second half of the year.
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