IPO Chill Bites LaShou, China Auto 中资企业赴美上市连遭冷遇

It may be springtime, but the warmer weather can’t come soon enough for 2 of China’s leading New York IPO candidates, group buying leader LaShou and auto rental specialist China Auto, which are both still feeling the freeze from US investors towards Chinese firms. The latest media reports say that China Auto’s imminent IPO is meeting with weak demand that keeps getting worse, while LaShou is suffering an acute cash crunch due to its own ability to raise new funds from a long-delayed IPO. Let’s look first at China Auto, which looked strong early this year when it became the first Chinese company to file for a New York IPO after a half-year hiatus due to poor investor sentiment after a series of accounting scandals last year. Just a day before China Auto was set to price its delayed IPO, it was only able to find buyers for about half the 11 million American Depositary Shares it aimed to sell for $10.50 to $12.50 each, according to a foreign media report, citing unnamed banking sources. (English article) Presuming it lowers the price below the range, perhaps to around $9.50, and then manages to sell three-quarters of its planned 11 million shares, the company would end up raising around $80 million. That would represent about a quarter of the $300 million China Auto initially hoped to raise, which it cut to around $158 million earlier this month when signs of weak demand were already emerging. (previous post) I predict this IPO will go ahead, unlike several similar offerings that had to be aborted last year, since China Auto clearly needs the cash and is already so close to the final listing; but all the signs indicate investor sentiment is still extremely weak for Chinese companies, especially money-losing ones like China Auto. On a similar note, another major money loser, LaShou, is reportedly making large staff cuts and slashing its advertising spending as it seeks to conserve cash after the derailment of its own New York IPO last year. (previous post) The latest media reports are saying that LaShou has cut 40 percent of its technical staff, that the vice president of its online mall has resigned, and that it has slashed its advertising aimed at drawing visitors to its site. (Chinese article) The reports contain a response from a spokesman, who describes the moves as a “strategic adjustment”. LaShou’s original IPO plan reportedly derailed last year after several major investment banks refused to underwrite the listing due to concerns about some of the its accounting, which led US securities regulators to also request more information. One of my  sources told me the company was preparing to reactivate the listing several weeks ago, though we have yet to see any new public filings. Even if it manages to file for an IPO, considering the current chilly climate, I wouldn’t expect any investors to show interest in a LaShou offering due to its money-losing status and previous questions about its accounting. If that’s the case, look for LaShou’s cash crunch to worsen in the months ahead, potentially forcing it to either close or sell itself for a bargain price to a more cash rich rival or one of China’s healthier Internet companies.

Bottom line: Weak investor sentiment will lead China Auto to raise just a quarter of the funds from its original IPO plan, and will prevent cash-starved LaShou from making its own planned listing.

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