Xunlei: Preparing For New IPO Try? 迅雷：准备尝试新的上市？
The year 2012 will easily go down as the worst for New York IPOs by Chinese firms since the global financial crisis, though there’s still some hope we could see one or 2 offerings in the next couple of months by cash-starved Chinese firms. A social media website named YY surprised many when it made a preliminary New York IPO filing earlier this month (previous post), and now video and music sharing site Xunlei is also emitting signals that indicate a filing could be near for its own stalled public offering.
China stock watchers will recall that Xunlei originally filed for a New York IPO last summer to raise up to $200 million. (previous post) But then it was forced to cut back the size of the offering as demand evaporated at the height of an investor confidence crisis sparked by a series of accounting scandals at overseas-listed Chinese firms. Xunlei later abandoned the offering completely in July.
After more than a year out of the public spotlight, the company’s CEO Zou Shenglong has come out of hiding to refute recent media reports that he may be set to sell a strategic stake in Xunlei to search giant Baidu (Nasdaq: BIDU) or security software specialist Qihoo 360 (NYSE: QIHU). (Chinese article) He further disclosed that his company raised an additional $30 million in new capital back in March — far less than the $200 million it originally hoped to get in an IPO but probably enough to continue funding its operations for the next year.
In fact, Zou didn’t completely rule out investments by Baidu or Qihoo, but instead said his company wouldn’t be looking for any new big investors before it makes its own long-awaited IPO. Thus based on all these recent signals, one could reasonably guess that Xunlei may be currently talking with Baidu, Qihoo and possibly others about becoming strategic investors as part of a planned IPO in the not-too-distant future, perhaps even by the end of the year.
Baidu was already an early investor in Xunlei, but presumably the size of that investment was small. With a larger strategic stake, Baidu could use Xunlei to complement its own video sharing site, Qiyi, which hasn’t really been gaining much market share against bigger competitors like Youku Tudou (NYSE: YOKU) and Sohu (Nasdaq: SOHU) video, which is also wants to make an IPO. Qihoo has also shown a strong interest in forming new partnerships with other online firms to help boost its recently launched search service, which is making one of the first serious attempts in years to break Baidu’s stranglehold on the Chinese search market.
All this looks good for Xunlei, since having a strong, profitable partner like Baidu or Qihoo would instantly give it more credibility as it tries to attract skeptical investors still worried about new Chinese accounting scandals. An investment from either Baidu, Qihoo or another strategic investor would presumably total around $30-$50 million, meaning Xunlei would only have to attract another $50-$70 million to make an IPO in the respectable $100 million range.
Meantime, all eyes will also be watching to see if YY makes another IPO announcement, which will indicate whether it received a positive reception for its initial IPO filing. I predict we should hear something from YY in the next 1-2 weeks, and that Xunlei and possibly even Sohu could make their own preliminary IPO filings in November, as cautious investors finally regain some appetite for Chinese stocks. If and when that happens, look for a small flood of offerings to follow in early 2013, as companies that have waited for more than a year to make IPOs finally seize on a new window of cautiously positive sentiment.
Bottom line: Xunlei could be preparing to launch its stalled New York IPO, amid reports it could bring in Baidu or Qihoo 360 as strategic investors for the offering.
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