Bottom line: CGN Power’s shares could have some upside over the next 6 months, while Momo is likely to delay its IPO until next week as it responds to allegations of illegal actions by its CEO.
News continues to come thick and fast in the year-end IPO rush, with a number of colorful stories making this year’s listing frenzy a bit feistier than usual. Leading the headlines was a sizzling trading debut for nuclear power company CGN Power (HKEx: 1816), as investors clamored for a play in China’s drive to clean up its polluted air. Meantime, mobile social networking (SNS) app maker and listing candidate Momo issued an updated filing for its New York IPO, explaining wrongdoing claims against its CEO by his former employer NetEase (Nasdaq: NTES). Lastly, seafood company China Tuna has formally yanked its Hong Kong IPO plan, ending a messy affair that was spoiled by revelations by environmental advocacy group Greenpeace.
Let’s begin with CGN, which capped an extremely popular IPO when its shares soared in their Hong Kong trading debut. The stock sold for HK$2.78 (36 cents), representing the top of its range, and soared as much as 25 percent when trading began. It ended its first trading day up 19 percent at HK$3.31, becoming Hong Kong’s largest IPO in 2 years as the company raised nearly $3.2 billion. (English article)
Even after the strong debut, CGN’s shares still trade at a relative discount compared to other clean energy producers, meaning there could still be room for upside. Investors are keen to buy into a company that should see plenty of business in the next decade as China embarks on a major drive to build new nuclear power plants. I personally like the CGN story and would say it looks like a good bet over the next 2-3 years. But it also presents some risk, as China has very little experience in this sector and delays or even an accident could put a severe crimp on new development.
Next let’s look at Momo, which was preparing to price and list its shares this week in New York until NetEase issued its scathing statement on former employee and Momo founder and CEO Tang Yan. NetEase accused Tang of unethical and even criminal behavior for stealing NetEase information and other property to start Momo. But no criminal charges were ever filed, which led me to conclude the surprise NetEase attack was designed to spoil the listing party but the plan would still move ahead. (previous post)
Now media are reporting that Momo has issued a statement in a new filing with the US securities regulator, explaining its version of events. (Chinese article) The statement says NetEase sent Tang a letter shortly after Momo released its app, saying the move violated a non-compete clause in Tang’s former contract and ordering him to withdraw the app.
But Tang didn’t believe he had violated his agreement, and went ahead with his plans at Momo. The statement adds that NetEase could still take future action or release more statements related to the claim. There’s no word whether this action will delay Momo’s trading debut this week, but I suspect it will since the company will need to reassure both investors and the securities regulator about the situation.
Finally there’s China Tuna, a leading domestic tuna producer, which was moving ahead with plans to raise about $150 million in Hong Kong when it became embroiled in its own scandal in October. (previous post) The scandal saw Greenpeace point out the company had misled investors by downplaying the risk it faced of punishment for illegal fishing. As a result the Hong Kong securities regulator asked the company to suspend its listing plan.
Now China Tuna has said it is formally withdrawing the IPO plan due to the negative publicity. (company statement) The company doesn’t say what it’s next step will be, but I suspect it will quietly put its listing plan on ice for the next year or two until memories of this year’s bad experience are forgotten. Then it could make a new attempt as soon as 2016, at which time investors may be ready to take another look.