IPOs: Floodgates Open With Tencent, Sohu, Bona, Fintech Listings

Bottom line: A periodic window of IPOs that opens every 2-3 years is taking shape, with fintechs and other new categories like online literature likely to do well, while older concepts  like e-commerce could struggle for attention.

New window opens for Chinese IPOs

My long-predicted IPO floodgate has finally burst, with no less than four major offerings in the headlines as we go into the new week. The new offerings I’m referring to involve two in the US, one for fintech startup Ppdai and another that has been talked about forever for Sogou, the search engine backed by Internet superstar Tencent (HKEx: 700) and the less steller Sohu (Nasdaq: SOHU).

Meantime, one of the other IPOs also involves Tencent, with its China Reading online literature unit getting cleared by the Hong Kong stock exchange and set to file its prospectus. Last but not least is Bona Film, the formerly New York-listed company that has been cleared for a re-listing in China. 

All of this comes as another blockbuster IPO for Qudian, a fintech microlender, gets set to price and make its trading debut later this week. And as a final footnote to all of this, Secoo (Nasdaq: SECO), a luxury e-commerce company that made its New York IPO last month, has put out a note that can only be described as desperate, saying one of its key investors still has confidence in the company after its stock has plunged since the offering.

As I’ve said already, I’ve been predicting this flood of IPOs right around now, largely reflecting a positive window of investor sentiment that we seem to see around every 2-3 years. The last one of these came back in 2014, and crested with the mega-offering for Alibaba (Nasdaq: BABA), but also included rival JD.com (Nasdaq: JD) and Weibo (Nasdaq: WB).

Let’s jump right in and give each of these items a very brief run-down, starting with the Ppdai offering that is set to aiming to raise $350 million in New York. (Chinese article) Like Qudian, Ppdai is an online lender that has posted phenomenal growth over the last few years, banking on China’s recently relaxed prohibition on private money in the financial services sector.

The company has been profitable since last year, and I would encourage anyone who wants to see its impressive financials to click on the above link for some nice graphics. I’m hearing that the similar IPO for Qudian, which should debut later this week and raise around $800 million, is being quite well received. That should bode well for Ppdai, since the two companies are quite similar.

Next  there’s Sogou, which is easily the biggest “who cares” of these IPOs but is still noteworthy nonetheless. The search engine indicated back in August it would file for an IPO soon (previous post), though I was skeptical at that time due to numerous previous similar noises that never resulted in anything.

But now Sogou has put out another statement saying it has filed an F-1 form with the US stock regulator, and will soon issue a prospectus. (company announcement) There’s no fund-raising target or any other information, though I expect the size will be relatively modest, at $100 million or less. This particular company has been a number-three in the search space forever and never seems to be going anywhere, and I expect its IPO will get a decidedly tepid reception.

Reading Into China

Next let’s move to Hong Kong, where a much more highly anticipated IPO by Tencent’s online literature unit, China Reading, has been cleared by the local stock exchange for a listing set to raise up to $800 million. (company announcement) This deal has been talked about for a while, but should be quite exciting as it’s a first-in-its-class and also the company is reportedly quite profitable. We’ll get a first glimpse of just how profitable when it releases its prospectus later on Monday, followed by the launch of its roadshow.

Then let’s go quickly to the mainland, where Bona Film’s name has appeared in reports saying it will make an offering to raise a relatively modest 1.43 billion yuan ($220 million) in China. The most significant thing about this one is that it’s the first I can recall of a formerly New York-listed company coming back to China to list through a proper IPO. That’s significant, because all such similar “homecomings” to date have been through backdoor listings that are time-consuming and fall in a relatively gray area. Thus this one indicates the Chinese regulator may be prepared to let these companies jump the queue and re-list in China without having to join the big backlog.

I’ll close with the rather weak note coming from e-commerce company Secco, which has been struggling since its IPO last month on the Nasdaq. The company sold shares at $13 apiece, and they have moved steadily downward since then. That has prompted the company to take drastic action, in the form of a release saying one of its investors, IDG, is still confident in the company.

That declaration, while desperate, seems to have had some effect, and sparked a 17 percent jump in the stock on Friday. But it’s still down about 37 percent from its IPO price, showing that not all of these upcoming offerings will necessarily do well, especially in tired categories like e-commerce that already have plenty of other listed companies to choose from.

 

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