The two-day rally in YY Inc. (YY), the
first Chinese company to debut shares in the U.S. since April,
is signaling the revival of a market that is suffering the
biggest dearth of initial public offerings since 2003.
YY, a Guangzhou-based company that runs an online social
network, has jumped 7.8 percent to $11.32 since Nov. 21, when it
became the third Chinese company to list stock in the U.S. this
year. The IPO priced at the bottom end of YY’s $10.50 to $12.50
target range, and raised $82 million for the company. The
Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese
stocks in the U.S. had its first five-day advance in three
weeks, gaining 4.5 percent to the highest since Nov. 7.
Chinese IPOs in the U.S. have declined to three this year
from a peak of 42 in 2010 as the slowing economy and allegations
by short sellers such as Muddy Waters LLC of accounting
irregularities sapped investor demand. Acquity Group Ltd. (AQ) and
Vipshop Holdings Ltd. (VIPS), the two other Chinese companies that
listed in the U.S. this year, have surged at least 12 percent
since their IPOs after cutting their targest prices by about 40
percent amid weaker demand.
“YY’s had a good trading debut,” Josef Schuster, founder
of the Chicago-based Ipox Schuster LLC that oversees about $2
billion, said in a phone interview on Nov 21. “It’s really
going to pave the way for other similar IPOs.”
TCP International Holdings Ltd. (0214216D), a Shanghai-based
manufacture of light bulbs, Newsummit Biopharma Holdings Ltd (NSB), a
Shanghai drug company, and China Dredging Group Ltd., which
provides dredging services in Fuzhou, Fujian Province, are among
companies that have announced U.S. IPO plans over the past 12
months. China Auto Rental Holdings Inc. (CARH), the country’s largest
car-rental provider, postponed a plan to raise as much as $138
million in April after struggling to attract investors.
Postponed Listings
YY’s experience may spur other Chinese companies to move
forward with postponed or pending listings in the U.S.,
according to Ipox Schuster, Oberweis Asset Management Inc. and
Paragon Capital.
“Strong Chinese companies still want access to the U.S.
market, which is the deepest, most prestigious capital market,”
Kevin Pollack, a managing director at Paragon Capital, which
invests in Chinese stocks, said by phone on Nov. 21 from New
York. “A long line of companies want to do IPOs here. Having
one successful IPO bodes well for the other companies.”
Hollysys Automation Technologies Ltd. (HOLI), led the rally in
Chinese companies listed in the U.S. last week, as data showing
manufacturing is expanding signaled growth in the world’s second
largest economy may be picking up.
Hollysys Jumps
Hollysys, a Beijing-based manufacturer of automation and
control systems, soared 16 percent last week to $10.55, while
China Eastern Airlines Corp. (CEA) rose 5.6 percent to $17.94. The air
carrier’s shares traded 2.6 percent higher than their equivalent
in Hong Kong, the biggest premium since September, data compiled
by Bloomberg show.
The iShares FTSE China 25 Index Fund, the biggest Chinese
exchange-traded fund in the U.S., jumped 2.4 percent to $37.46
on Nov. 23, the highest close since Nov. 6. The ETF gained 4.7
percent last week, the most since June.
Vipshop, an online discount retailer based in Guangzhou,
raised $72 million by selling 11 million ADRs at $6.50 each in
March, below their target range of $8.50 to $10.50 per share.
Acquity, a Hong Kong-based online advertising company, raised
$33 million in April, compared with its minimum target of $56
million.
Vipshop slumped 15 percent in the first day of trading
while Acquity lost 4.2 percent. Both have since rebounded, with
Vipshop up 90 percent since its IPO and Acquity gaining 12
percent since its U.S. listing.
Go Private
The three companies are bucking a trend that has seen
Chinese companies withdraw from the exchanges in North America
as valuations slumped amid campaigns by short sellers. Since
April 2010, 49 companies — including Focus Media Holdings Ltd.
and 7 Days Group Holdings Ltd. (SVN) — have announced their intention
to go private and delist from U.S. markets, according to a
report by Roth Capital Partners issued Nov. 5.
Meanwhile, the number of IPOs has dropped to three from 17
in 2011, data compiled by Bloomberg show. The Bloomberg China-US
gauge has lost 14 percent over the past two years, compared with
an advance of 19 percent in the Standard Poor’s 500 Index.
While initially worried that YY wouldn’t meet its
fundraising target, Chief Financial Officer Eric He said the
stock’s climb shows Chinese companies with strong growth and
earnings remain attractive to U.S. investors.
‘Magnifying Glasses’
“In the U.S. market, good companies will ultimately be
able to show their true value,” He said in a phone interview on
Nov. 21. “In a difficult market situation where many people are
looking with magnifying glasses, we are willing to come and
accept the strictest examination by the market.”
YY, which provides online music, games and networks,
counted Tiger Global Management LLC. and Steamboat Ventures, a
venture capital backed by Walt Disney Co., as investors. Morgan
Stanley Co., Deutsche Bank AG and Citigroup Inc. were among
the IPO underwriters, according to a company filing.
While YY is gaining, investors remain wary of Chinese
companies after allegations against companies including Sino-
Forest Corp. and Focus Media that they misled investors or
misrepresented assets, according to Francis Gaskins, president
of Marina Del Rey, California-based Ipodesktop.com.
“They have good financials and it happens to be in a hot
sector, Gaskins, whose firm monitors initial public offerings,
said on Nov. 21. ‘‘But I don’t see the start of a flood of IPOs
of Chinese companies.’’
‘Appealing to Investors’
At $10.50 a share, YY was priced at nine times its earnings
in the first nine months at the IPO. By that measure, it was
cheaper than some of the largest Chinese Internet companies.
Tencent Holdings Ltd. (700), China’s biggest Internet company, trades
for 32 times trailing 12-month earnings. The price to earnings
ratio was 22 for Baidu Inc., the largest online search engine.
‘‘The prices are discounted enough to attract investors,’’
Jeff Papp, a senior analyst at Oberweis Asset Management, which
invests in Chinese companies, said by phone from Lisle, Illinois
on Nov. 21. ‘‘Both the company and the banks have understood
that, given the sentiment, it needs to be done in a fashion that
the prices have to be appealing to investors. Some profitable
trading may help open up the backlogs in the IPO market.’’
To contact the reporters on this story:
Ye Xie in New York at
yxie6@bloomberg.net;
Belinda Cao in New York at
lcao4@bloomberg.net
To contact the editor responsible for this story:
Emma O’Brien at
eobrien6@bloomberg.net