Xunlei, China Auto File For IPOs in US, HK
New York is firmly establishing a reputation as the preferred listing venue for China Internet IPOs, while Hong Kong is developing a taste for auto-related listings. That’s my quick assessment following reports that online video sharing site Xunlei has just joined a long queue of Chinese Internet firms filing to list in New York. At nearly the same time, car rental company China Auto Rental has filed to list in Hong Kong, reversing course from a previous plan to offer shares in New York.
New listings for China tech plays have become a regular feature on Wall Street over the last half year, with around a dozen such companies making new share floats during that time. The latest of those, and the largest to date, saw e-commerce giant JD.com (Nasdaq: JD) raise $1.8 billion late last week, in an offering that received strong interest from investors.
Now we’ve just had another IPO filing from Xunlei, which I’ve previously described as an “orphan” company because it’s one of China’s only remaining independent online video sites. Most of the country’s other major video sites have been purchased by larger companies over the last year, and even industry leader Youku Tudou (NYSE: YOKU) formed a strategic equity alliance with leading e-commerce site Alibaba last month. (previous post)
According to the latest reports, Xunlei filed an IPO prospectus with the US securities regulator late last week, and is aiming to raise up to $100 million. (Chinese article) The reports say Xunlei became profitable in 2012, and its profit jumped nearly 20-fold to about $10 million last year. Its revenue grew at a slower 24 percent last year to $175 million.
Company watchers will recall that Xunlei tried unsuccessfully to make an IPO in 2011 during a deep freeze in investor sentiment towards new Chinese listings. It underwent several restructurings after that to clean up some problem areas, most notably the presence of pirated material on its site, and now feels it has a good product to sell to investors. This IPO could face some difficulty, as investors will worry about the long-term viability of an independent mid-sized player like Xunlei. But perhaps some will buy into the company as a future takeover target.
Next let’s look quickly at China Auto Rental, which has made its first filing for a Hong Kong IPO. (English article) The company, backed by private equity firm Warburg Pincus and rental car giant Hertz (NYSE: HTZ) hasn’t included much detail in its filing, though one media report says it wants to raise up to $400 million. Like Xunlei, the company had previously tried to raise $140 million in a 2012 New York IPO but ended up scrapping the offer due to weak market sentiment.
I’m personally slightly puzzled at this new offering plan, as China Auto only turned profitable last year and Hong Kong requires that all companies that list on its main board post 3 consecutive profitable years. China Auto’s chief executive said late last year that he was leaning toward a Hong Kong offering, which led me to guess the earliest it could make such a listing was 2015 or 2016. (previous post)
We’ll have to wait and see some more detail before we can comment further on what’s happening here. It’s always possible the company managed to get an exemption from the 3-year profitability rule, as it turned profitable last year and reported a 163 million yuan ($26 million) net profit in the first quarter of this year.
It’s also possible the company could list on Hong Kong’s smaller enterprise board, which has no profit requirements, and then later migrate to the main board if it posts 3 years of profits. The mode of listing may be unclear for now, but what is clear is that the company sees better prospects for a listing in Hong Kong than New York. That’s not too surprising, as many of China’s top automakers are now listed in Hong Kong, including Dongfeng (HKEx: 489), Geely (HKEx: 175) and BYD (HKEx: 1211; Shenzhen: 002594).
Bottom line: Xunlei’s New York IPO plan is likely to get a tepid reception if it gets to market, while China Auto could get stronger demand if it moves ahead with a Hong Kong listing.
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