IPOs: 58.com Nears In NY, Forgame Jumps In HK

Forgame surges in HK debut

As China gets back to work after the weeklong National Day holiday, Chinese tech firms are also embarking on their own year-end drive to make IPOs in both New York and Hong Kong, hoping to end a sluggish 2 year period for such new listings. The signs certainly look positive for upcoming offerings, at least based on the strong trading debut for web game developer Forgame (HKEx: 484) last week. That could be good news for online classified ad site 58.com, whose prospectus for a New York IPO could soon be publicly released as it aims to become only the second major New York IPO by a Chinese firm this year.

Let’s start our back-to-work IPO wrap-up with Forgame, which really does look like an exciting development for several reasons. For starters, the offering raised just over $200 million, a large sum, meaning it should be a relatively accurate gauge of the latest market sentiment. (English article) The other interesting element is that Forgame, China’s largest online game developer, chose to make its offering in Hong Kong, reflecting a recent preference for that location by Chinese tech firms over the previously preferred choice of New York.

But the most exciting element of this story was how well Forgame performed on its trading debut. The company’s shares jumped as much as 36.5 percent in their debut last Thursday, and continued to rally the next day. They closed last Friday at HK$71.50, some 40 percent higher than their IPO price of $51 per share. It’s interesting that Forgame decided to hold its IPO during the holiday, as many traders were on vacation during the week. But a continued rally this week would certainly be a good sign for the overall market, perhaps making e-commerce leader Alibaba think again about its threats to move its multibillion-dollar IPO to New York due to a disagreement with Hong Kong securities regulators.

From Forgame let’s look quickly at 58.com, which some have compared to a Chinese version of Craigslist that compiles city-specific pages of web-based classified advertisements. Media had previously reported the company was aiming to raise up to $100 million through a New York listing by year end, and now the latest reports cite unnamed sources saying it was preparing to submit its IPO prospectus to US securities regulators at the end of September. (English article)

If 58.com did make the submission and there were no major problems, I would expect we could see the document publicly released perhaps as soon as next week. I’ve previously said that I expect the company is either profitable, or perhaps will become profitable in the very near future, making it attractive to investors. I’ve also said that this looks like a very promising area, and I’m a bit surprised that no other big players have discovered this business yet in China.

All that said, the signs certainly do look positive for 58.com and any other tech or new media companies that are aiming to list in New York or Hong Kong in the final 3 months of 2013. We’ll have to see how Forgame’s shares perform this week to get the clearest picture of what’s ahead. But if the shares can hold their gains and even rally a bit more, I wouldn’t be surprised to see my previously predicted flurry of 3-5 New York IPOs by year end gain some momentum and might even have to raise my forecast slightly.

Bottom line: A strong trading debut for online game maker Forgame bodes well for the tech and media IPO market in Q4, and could attract more firms to Hong Kong.

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