IPOs: Focus Media Changes Course, Renaissance Eyes Buyouts

Bottom line: Focus Media will re-list with a high valuation on a new enterprise-style board set to launch in Shanghai next year, while China Renaissance’s new fund to help US-listed firms privatize will attract strong investor interest.

Focus Media changes IPO re-listing plan

A couple of items are in the news involving the recent buyout wave for US-listed Chinese companies, which are rapidly abandoning New York in search of higher valuations in their home market. In an abrupt and somewhat surprising shift, Focus Media, one of the first companies in this homecoming wave, is reportedly abandoning its original plan for Shanghai.

The second item has China Renaissance, a well-respected domestic private equity firm, preparing to raise a major new fund that will help to finance privatizations of Chinese firms from New York. This particular deal looks significant, since many of the nearly 3 dozens firms to announce privatization plans this year could soon need new funding if previous commitments collapse due to recent volatility in China’s domestic stock markets. Continue reading

FUND RAISING: Wine Seller Jiuxian Dilutes, Baidu Buys Back

Bottom line: Jiuxian’s raising of a seventh funding round reflects fading investor interest in online wine sellers due to a luxury slowdown, while Baidu’s share buyback plan looks like a good use of cash to support its sagging stock.

Investors lose taste for online wine sellers

I’ve been a financial news reporter for quite some time now, but even I was surprised to read that online wine seller Jiuxian has just raised funds in a new round of G-series funding. This marks the first time I’ve seen the letter “G” in such a context, and I had to do some counting on my fingers to finally figure out the 500 million yuan ($80 million) funding round represents the seventh for this company that apparently has yet to make a profit despite so much private investment.

Meantime, online search leader Baidu (Nasdaq: BIDU) was in a spending mode with its announcement that it would dole out up to $1 billion over the next year to support its sagging stock that plunged to a 1-year low this week on a weak earnings report. This particular use of money looks reasonable for a cash-rich company like Baidu. I do find the timing just slightly ironic, since Baidu raised $1.25 billion through a bond offer just a month ago, meaning this latest buyback will be funded by the same investors who have recently been dumping the company’s stock. Continue reading

INTERNET: Alibaba Answers Walmart Challenge With Grocery Blitz

Bottom line: Alibaba’s massive online grocery promotion looks aimed at countering potential new challenges from Walmart, as the US retailing giant overhauls its China e-commerce operations.

Alibaba launches major grocery promotion

Just days after Walmart (NYSE: WMT) made a major shift in its China e-commerce strategy, local market leader Alibaba (NYSE: BABA) is firing back with a massive 1 billion yuan ($160 million) promotion that looks squarely aimed at the US retailing giant. This particular promotion comes in the grocery space, which also happens to be a core strength of Yihaodian, the major plank in Walmart’s China e-commerce operation. Alibaba’s announcement also comes just days after Walmart announced it was buying out its partners in Yahaodian to take full control of the site and better integrate it with its existing China operations. Continue reading

News Digest: July 31, 2015

The following press releases and media reports about Chinese companies were carried on July 31. To view a full article or story, click on the link next to the headline.

  • Baidu (Nasdaq: BIDU) Announces $1 Bln Share Repurchase Program (PRNewswire)
  • Focus Media May Drop Backdoor Listing, Eyes New Strategic Industries Board (Chinese article)
  • Wine E-tailer Jiuxian Lands 500 Mln Yuan Series G Funding (English article)
  • China Renaissance Earmarks Half of 5 Bln Yuan Fund Raising for VIE Buyouts (Chinese article)
  • China Box Office Posts Monthly Record with 5 Bln Yuan in July (Chinese article)
  • Latest calendar for Q2 earnings reports (Earnings calendar)

INTERNET: WeChat Takes Aim at WhatsApp in Europe

Bottom line: Tencent’s new WeChat push into Europe looks like a better strategy than its previous failed US effort, though it should provide more support to its local partners if it wants to succeed.

WeChat signs on Italian partner

After a disastrous and costly foray into the US, leading Chinese mobile messaging app WeChat is gearing up for a new attempt at going global, this time setting its sights on Europe. This particular push has WeChat, a unit of Chinese Internet giant Tencent (HKEx: 700), forming small tie-ups with local European partners to promote the service. The latest of those has seen WeChat link with a small Italian start-up called ChatSim, which provides technology that lets users link up different mobile chatting apps.

Announcement of this particular tie-up is clearly the work of ChatSim, which has put out a slightly amateurish press release announcing the partnership. (company announcement) That said, I do think that more broadly speaking Europe looks like a better place for Tencent to try its luck at global expansion. That’s because the US is already quite hotly contested not only with WhatsApp but also rival instant messaging products from Internet giants like Google (Nasdaq: GOOG) and Facebook (Nasdaq: FB), which also owns WhatsApp. Continue reading

INTERNET: Giant Eyes Big Valuation as Game Operators Struggle

Bottom line: China’s gaming market remains stubbornly fragmented and unprofitable despite its huge potential, with no clear signs of much-needed consolidation coming anytime soon.

Gamers continue to struggle

As much of China bakes under a summer heatwave, a major trade show this week in Shanghai is casting a different spotlight on the overheated state of the nation’s gaming industry. One report is saying that only 2 percent of companies in the emerging mobile gaming space can generate big profits, and the situation may not improve anytime soon due to a stubborn state of fragmentation.

The problem has led many of China’s US-listed gaming companies to launch privatization drives over the last 2 years, including Giant Interactive, a large but decidedly second-tier player that de-listed a year ago. Giant’s talkative chief Shi Yuzhu is blaming US investors for failing to appreciate his company, with the latest reports saying he thinks Chinese stock buyers will value his firm at more than 5 times what it was worth when it de-listed from New York. Continue reading

BANKING: Tencent WeBank Finds Sweet Spot in Credit

Bottom line: Tencent WeBank’s rapid growth over the last 2 months shows it intends to focus on high-interest small loans aimed at consumers and small businesses, challenging credit cards and credit lines from traditional banks.

WeBank lends $130 mln in 2 months

Seven months after its launch, Tecent-backed (HKEx: 700) WeBank is showing off some of its first financial accomplishments that hint at the direction it may take as it carves out a place in China’s banking sector. The numbers reveals that the bank, the first to launch under a private-sector pilot program by Beijing, is setting its sights on providing credit to small businesses and consumers. The tack looks like a direct challenge to traditional credit card issuers, and could ultimately provide consumers with yet another payment option in both the online and offline worlds. Continue reading

News Digest: July 30, 2015

The following press releases and media reports about Chinese companies were carried on July 30. To view a full article or story, click on the link next to the headline.

  • Alibaba (NYSE: BABA) Cloud Unit Sets Sights on Amazon in $1 Bln Global Push (English article)
  • Giant Interactive Seeks 100 Bln Yuan Valuation in China Re-Listing Plan (Chinese article)
  • ICBC (HKEx: 1398) VP Zheng Wanchun May Become New Minsheng Bank Chief (Chinese article)
  • Departing China Mobile (HKEx: 941) Workers Complain of No Raises in 10 Years (Chinese article)
  • China’s Great Short Seller Suddenly Turns Bullish (English article)

MEDIA: Luxury Slowdown Clips Phoenix’s Wings

Bottom line: Sputtering demand for luxury goods and cars is likely to hamstring Phoenix Satellite TV’s earnings for at least the next year, as the company increasingly loses ground to new media rivals.

Sliding luxury demand undermines Phoenix

The recent slowdown in China’s luxury goods market is claiming one of its first victims in the media realm, with Phoenix Satellite TV (HKEx: 2008) warning that a sudden chill in luxury ad sales has wiped out its profits in the first half of the year. The news certainly doesn’t bode well for traditional media companies, which are a favored place for luxury goods makers to advertise. Car makers are another major source of ad revenue for these older media companies, and rapidly slowing sales in that sector also means that names like Phoenix and even some new media high-flyers like Baidu (Nasdaq: BIDU) and Sina (Nasdaq: SINA) could be looking at a difficult period ahead. Continue reading

BUYOUTS: Perfect World Wraps, Investors Wary on Others

Bottom line: Investors are regaining confidence that some of the bigger, recently announced buyouts for US-listed China companies could be completed, but believe many smaller deals will ultimately collapse.

Perfect World completes buyout

Online game operator Perfect World (Nasdaq: PWRD) has formally completed its management-led buyout, offering us a good opportunity to check the status of dozens of other pending offers that look shaky due to recent turbulence in China’s stock markets. Perfect World was one of a handful of companies that launched their privatization drives before May, when a wave of new bids fueled by speculative money from China’s frothy stock markets suddenly began.

I’ve previously said that many of the earlier bids like Perfect World’s are likely to succeed, as their funding sources seemed more solid. But some of the other bids may run into trouble due shaky money sources that may rapidly disappear as China’s stock markets show signs of heading into another tailspin. Continue reading

RETAIL: Walmart Eyes Alibaba, Amazon with China Buyout

Bottom line: Walmart’s Yihaodian could sharply boost its share of China’s e-commerce market in the next 2-3 years, following a buyout that will give the site better access to its parent’s experience, offline stores and global connections.

Walmart buys out Yihaodian partners

Just a week after sacking the 2 founders and top executives of its China e-commerce site, global retailing giant Walmart (NYSE: WMT) has taken the next step and bought out its partners in their Yihaodian joint venture. The buyout completes a takeover that began with Walmart’s purchase of a controlling 51 percent of Yihaodian 3 years ago. It also signals that Walmart is preparing to pump major new investment into the site, as it tries to become a major player in a market dominated by local giants Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD).

I have to applaud Walmart for finally taking control and tossing out Yihaodian’s founders, who weren’t doing much to challenge any of the nation’s top e-commerce sites. But that said, foreign companies have a very poor track record competing with homegrown Chinese Internet firms, and its far from clear if Walmart can succeed where other big names like Google (Nasdaq: GOOG), Yahoo (Nasdaq: YHOO), Expedia (Nasdaq: EXPE) and eBay (Nasdaq: EBAY) have failed in the past. Continue reading