500.com Cuts IPO, Vancl Raises Funds

RDA Microelectronics gets buyout offer

There’s a flurry of news in the fund-raising realm, led by word that online lottery company 500.com has sharply cut the size of its upcoming New York IPO following recent successful trading debuts for 2 other companies. At the same time, struggling online clothing seller Vancl has reportedly raised a new $100 million to keep funding its operations, as it looks for elusive profits. Meantime, Nasdaq-listed chipmaker RDA Microelectronics (Nasdaq: RDA) may be moving in the opposite direction of 500.com, with word that it has received a buyout offer that would see its shares de-listed from the Nasdaq.

The bigger story in this news is that the recent success of 2 new Chinese IPOs in New York doesn’t necessarily signal the end of a prolonged downturn for the sector, and western buyers will stay very selective towards new offerings and existing listed companies. Foreign investors are also showing little or no interest in money-losing companies like Vancl, which have operated in the red for most or all of their history and have no immediate chances of becoming profitable.

Let’s look first at 500.com, which made its initial public filing for a New York IPO 3 weeks ago and has now released new information. The company says it will issue 5.8 million American Depositary Shares (ADSs) and has set an initial price range of $9-$11. (Chinese article) That means it could raise up to $64 million, or less than half the $150 million it had originally planned. (previous post)

The drastic cutback in its fund-raising plan comes after the highly successful debuts of online classified advertising site 58.com (NYSE: WUBA) and online travel agent Qunar (Nasdaq: QUNR) over the last 2 weeks. Both companies soared on their debuts and now trade about 70 percent higher than their IPO prices. That strong showing makes this scale-back for 500.com a bit surprising. We’ll have to see how 500.com’s shares finally price, but this latest development appears to show that initial investor euphoria towards new China listings may be quickly fading.

Such investor euphoria disappeared long ago for Vancl, which has reportedly laid off large numbers of employees and greatly scaled back its operations over the last year in a bid to cut losses and stay in business. Vancl chief Chen Nian last month had reportedly sought help in turning his company around from his good friend Lei Jun, co-founder of fast-rising smartphone maker Xiaomi. (previous post)

Now media are reporting that Vancl has received $100 million in new investment, which leads me to suspect the money could be tied to sources linked to Lei. (Chinese article) Lei’s arrival into Vancl’s stable of investors would certainly be a welcome development, as the Xiaomi co-founder certainly has a strong record at running successful tech companies. Perhaps we’ll see some more announcements about this new alliance before the end of the year, which could be good news for Vancl.

Lastly let’s look at RDA, which has received a buyout offer from Tsinghua Unigroup, an entity related to the prestigious Tsinghua University. (English article) The offer of $18 per ADS represents a 16 percent premium to RDA’s last close before the deal was announced last week. It marks the second such offer by Unigroup, which is also in the process of buying another chipmaker, Spreadtrum (Nasdaq: SPRD). (previous post) This latest deal appears to show that Unigroup is in the market for underpriced chip designers. More broadly, the offer also shows the year-old de-listing parade of Chinese firms from New York’s 2 stock exchanges will continue, with at least another 2 or 3 major privatizations likely before the current wave subsides.

Bottom line: 500.com’s downsizing of its IPO and a buyout offer for RDA Microelectronics show that US investor sentiment remains shaky toward Chinese shares despite recent improvement.

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