Shanda Cloudary IPO Glides Ahead 盛大文学推进IPO计划

By newsdoug on June 13, 2012

Orbis invests in Shanda literature unit The literature unit of online game giant Shanda Interactive seems determined to move forward with its plan for a New York IPO despite a weak investor climate, landing $15 million in new funds from venture investor Orbis as it forges ahead. This kind of late-stage investment is clearly designed to generate some buzz for an offering that looks slightly interesting to me, but may still have limited appeal for the average Wall Street investor worried about recent volatility in US-listed China stocks after a series of accounting scandals last year. This latest investment also seems aimed at setting a valuation for the unit, Shanda Cloudary, again as Shanda Interactive looks to raise as much cash as possible to help pay down its big debt from its own recent privatization. (previous post) Let’s have a look at the actual news, which has Orbis taking a 1.875 percent stake in Cloudary for its $15 million investment, valuing the company at a relatively modest $800 million. (Chinese article) That’s far less than Shanda Interactive was worth when it delisted earlier this year. It’s also about two-thirds of the value of Shanda’s only other listed unit, Shanda Games (Nasdaq: GAME), reflecting the fact that this literature unit may have big potential as a supplier of online literature even though it generates significantly less revenue than Shanda’s core online gaming business. Shanda filed to list Cloudary last year but had to withdraw the plan when market sentiment plummeted. It refiled the plan earlier this year (previous post), reflecting its urgent need for new cash even as broader market sentiment remained weak. The only major Chinese company to make a New York listing so far this year, discount online retailer Vipshop (NYSE: VIPS), was a major failure, and lingering negative sentiment forced one of the year’s only other China IPO candidates, auto rental firm China Auto, to withdraw its offering just before the final pricing last month. (previous post) From my perspective, I’ve always thought the Cloudary IPO looked like an interesting proposition, as online literature is clearly a big growth market as rapidly growing numbers of Chinese mobile Internet users look for interesting things to read on their tablet PCs and smartphones. As an early entrant to this market, Cloudary looked well positioned to become a major player in the space. What’s more, the company surprised the market last month when it announced its first-ever modest profit of about 3 million yuan for the first quarter of this year. Profitability has been rare among the stream of Chinese Internet companies to make IPOs over the last 2 years, so that fact could help ease investor concerns, even though Cloudary’s sudden move into the profit column, while not surprising based on recent trends, also may have been assisted by some accounting maneuvers. Regardless of that, I still do think the company’s potential, its relatively strong income statement and relatively modest valuation could mean it may actually succeed in becoming only the second Chinese Internet company this year to make a New York IPO, providing an interesting investment opportunity for anyone who likes this emerging growth area.

Bottom line: A new round of fund-raising indicates Shanda is moving ahead with the IPO for its Cloudary online literature unit, which could receive moderate investor interest.

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