IPOs: Funding Slows For Wanda Cinema, Kuaidi
Bottom line: Disappointing results for fund-raising by Wanda Cinema Line and Kuaidi taxi app show a recent boom in new funding for private Chinese companies may have crested and will wane for the rest of the year.
The crest of a huge wave of new fund raising for private Chinese firms may have passed, with word that 2 major new deals that should have attracted big investor interest have instead met with weaker-than-expected response. The first of those has seen investors give a lukewarm reception to a domestic IPO for Wanda Cinema Line, the nation’s first major movie theater operator to list. The second has seen taxi app operator Kuadi raise $500 million in a private funding round, which doesn’t sound too bad. But the figure is actually quite a bit lower than Kuaidi’s earlier plan and is also lower than a similar recent fund-raising round for leading rival Didi.
Each of these deals has its own background and reasons for the disappointing performance. But both were quite high profile and expected to attract big interest from investors, so their failure to raise as much as expected could show that the current wave of investor euphoria towards private companies in emerging sectors is starting to wane. When the history books are written, I suspect many will point to last month’s $1.1 billion fund-raising by smartphone sensation Xiaomi as representing the crest of the current fund-raising boom that began about a year ago.
Let’s begin with Wanda Cinema Line, whose IPO is taking place this week in Shenzhen. According to media reports, the company has set its stock price at 21.35 yuan ($3.44) per share, which represents a relatively modest ratio of 23 times 2013 earnings. (Chinese article) That ratio is almost certain to fall even lower to the 15-18 range based on 2014 results, since China’s box office grew 36 percent last year, and the PE would be even lower based on earnings projections for this year.
Those ratios look particularly disappointing, since a number of other companies making new IPOs this week in China are getting much higher multiples, even though Wanda Cinema is one of the few private companies and is far more dynamic that many of the others. The disappointing performance isn’t completely surprising, since Wanda had already cut back the size of its offering by about a third and is now raising a relatively modest 1.3 billion yuan, or about $210 million. (previous post)
Next let’s look at Kuaidi, which has raised $500 million from a group that includes Japan’s Softbank and existing major shareholder Alibaba (NYSE: BABA). (Chinese article) Obviously $500 million is quite a large amount and nothing to be ashamed of. But it’s still far below the $800 million that media reported the company was hoping to raise just a week ago.
The fact that Alibaba and its closely affiliated Softbank were among the lead investors also isn’t a surprise, since both companies were expected to be big investors in this round. But the lack of major new names on the list of investors is a slight disappointment. The final fund-raising figure is also well below the $700 million that top rival Didi raised last month, indicating investors are starting to lose enthusiasm for new deals.
Each of these deals has its own background and possible reasons for the disappointing response. Wanda is competing with a flood of rival new offerings in China this week, as 22 companies float shares to take advantage of recent bull markets in Shanghai and Shenzhen. For Kuaidi, investors may be worried about a recent flurry of local government moves to regulate an increasingly chaotic national market for private car services. Still, the bigger picture certainly shows that investors are starting to tire of new deals and spend their money more carefully, meaning we could see the size of major new deals grow steadily smaller throughout the year.
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