IPOs: CICC Surges in HK, Jiuxian Bubbles Up on China OTC

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Bottom line: CICC and Jiuxian are benefiting from a growing number of domestic listing options for private Chinese companies, but both will still need to show they can be profitable industry leaders for investors to take them seriously.

Jiuxian finally debuts on China OTC

A couple of new IPOs are highlighting the growing allure of China’s increasingly diverse stock markets for domestic companies that used to flock to New York. Leading the headlines is a very respectable performance in the long-awaited Hong Kong trading debut for CICC (HKEx: 3908), China’s oldest investment bank. The strong debut came even after CICC had to scale back the offering due to weak demand, and market watchers are attributing the performance to separate news that China will resume domestic IPOs by year-end after a pause of several months.

In the other headline, online wine seller Jiuxian has become the latest Chinese Internet firm to list on the country’s 2-year-old over the counter (OTC) market. The loss-making Jiuxian had initially aimed to list in New York, but abandoned that plan for a simpler offering at home. It joined other money-losing startups making similar listings over the last week, including online classified ad site Baixing and Alibaba-backed (NYSE: BABA) soccer club Evergrande Taobao. (previous post)

This pair of developments reflects the growing number of listing options becoming available to private Chinese companies that until recently had few choices for domestic IPOs. The country launched its Nasdaq-style ChiNext board in 2009, and since then the market has gone on to nurture big names like LeTV (Shenzhen: 300104) and Huayi Bros (Shenzhen: 300027), 2 of China’s most successful private media and entertainment firms.

The country launched its OTC market 2 years ago, and lately that board has also been gaining momentum with more than 4,000 listings, many of them for money-losing companies hoping to one day transition to one of the country’s main 2 stock markets. Another new emerging industries board is also being planned to launch as soon as next year in Shanghai, and could host more private high-growth names like Alibaba-affiliated Ant Financial and Baidu’s (Nasdaq: BIDU) iQiyi online video service.

That rapidly growing number of listing options, combined with China’s own announcement that it will resume IPOs on its 2 main boards, are being credited with boosting shares of CICC in their trading debut in Hong Kong. (English article) After scaling back the offering to just $800 million from an initial $1 billion target, CICC ended up pricing its shares at the top of their range, at HK$10.28.

Short-Term Support

The shares surged as much as 11 percent during their opening session, and ultimately closed up a respectable 8.5 percent. Established in 1995 as a joint venture between China and US giant Morgan Stanley (NYSE: MS), CICC’s name was once synonymous with investment banking in China.

But the company has suffered from recent management turmoil as its influence faded rapidly over the last few years. While the China IPO resumption will certainly give CICC a boost in the next 2-3 months, the company’s shares could still face some downward pressure over the longer term unless it can regain its previous position as an investment banking services leader.

Next there’s Jiuxian, which has just made its debut on China’s OTC market after a somewhat tortured process that saw it stage an impressive 7 private funding rounds before finally making its IPO. (Chinese article) The company had originally hoped to list in New York, following a similar path that many Chinese Internet companies took over the last decade when their domestic options were far more limited.

Jiuxian is still growing rapidly, banking on Chinese demand for imported wine, but is also losing money 7 years after its founding. Its chief was almost certainly disappointed at having to go to the Chinese OTC for its IPO, but also realized his investors were getting impatient. Rather than dwell on that element of the story, he instead focused on the potential for a future migration to one of China’s big boards, which indeed looks like the next logical step if and when Jiuxian ever becomes profitable.

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