YY Marches To Market YY开赴市场
The latest signs of a thaw in overseas sentiment toward Chinese stocks is coming today with news that online networking site YY has set a price range for its New York IPO, in what would become only the second major US offering by a Chinese firm this year. At the same time, media are reporting that the US securities regulator is moving closer to a deal with its Chinese peers that will give it better access to the auditing records of US-listed Chinese firms, another major development that should further boost investor confidence.
Let’s start with the YY news, as that’s the most exciting because it marks the first time in months for a major new IPO for a Chinese firm in New York. The last time I wrote on the subject was back in May, when auto rental specialist China Auto had to abruptly abort an IPO that was originally set to raise up to $300 million due to lack of demand for its shares. (previous post) The only other Chinese company to make a major offering this year was online discount retailer Vipshop (NYSE: VIPS), which was also forced to price its share below their original range due to anemic demand following a series of accounting scandals at other US-listed Chinese firms. (previous post)
According to the latest media reports, YY has set a price range of $10.50 to $12.50 for its American Depositary Shares, and aims to raise up to $97.5 million through the offering. (Chinese article) According to the company’s latest filing, it will list on the Nasdaq under the symbol YY. But perhaps most important, YY posted a second-quarter profit of 17.3 million yuan, or about $2.8 million, and has now been profitable for 3 consecutive quarters. That’s quite a critical element, since few if any of the Chinese companies to attempt listings over the last year have been profitable at the time of their listing application.
We’ll have to wait and see how the shares price, but based on recent signs I would expect to see them price at the low to middle end of their range. If that happens in the next day or 2 and the shares perform reasonably on their trading debut, look for 2 or 3 more other Chinese IPOs to move quickly ahead by the end of November from companies like online clothing seller Vancl and video sharing site Xunlei.
Moving on to the second news bit, media are reporting that attempts by the US securities regulator to gain better access to auditing records of US-listed Chinese firms have taken a big step forward as ties improve with its Chinese peers. In the latest sign of that improving cooperation, officials from the US Securities and Exchange Commission have been allowed to observe their Chinese counterparts’ inspections of auditors. (English article)
But perhaps most importantly, the SEC is expected to start talks by year end that would ultimately give it access to audit documents of US-listed Chinese firms. This development is key not only because it will improve investor confidence in these stocks, but also because it demonstrates that China doesn’t intend to halt the flow of its companies listing in the US. Many had worried that China might try to stop new companies from making such listings, but this kind of development should give both companies and investors more confidence that new listings will be allowed to proceed with stronger supervision.
Bottom line: The upcoming IPO by YY should price at the low- to mid-end of its set range, and a respectable trading debut could lead to filings of 2-3 similar offerings by the end of November.
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