IPOs: Haidilao Heats Up HK, Taomee Gives NY Cold Shoulder

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Bottom line: Hong Kong’s IPO market will heat up in the first quarter of next year for non-financial Chinese offerings, while privatizations of Chinese firms from New York are likely to accelerate at raised offering prices.

Taomee, Wuxi Pharma join homeward migration

A series of new listings in Hong Kong and de-listings from New York are heating up the headlines as we head toward year-end, reflecting 2 of the major themes for 2015 IPOs. Hong Kong hasn’t exactly been a hotbed for new listings this year, but has been gaining recent momentum that includes news of a $300 million planned IPO by hotpot chain Haidilao. At the same time, other reports are saying that Bank of Zhengzhou has just launched its own Hong Kong IPO, spotlighting another trend that has seen a flurry of mainland Chinese banks try to tap the market to bolster their financially-stretched balance sheets.

Meantime across the Pacific in New York, children’s website Taomee (NYSE: TAOM) and drug maker Wuxi PharmaTech (NYSE: WX) have come closer to completing previously announced privatization plans, as part of a broader exodus of Chinese companies from the US. The former case has Taomee announcing it has formally signed a buyout deal to privatize the company, and Wuxi Pharma saying it has completed its own privatization.

The current year will be remembered as a rocky time for IPOs in Hong Kong and China, due to wild volatility in China’s stock markets during the year. That volatility saw markets more than double between the end of 2014 and mid 2015, only to plunge during the summer in a massive correction. IPOs moved in sync with the market, booming in the first half of the year, only to come to a near standstill in the third quarter. Now they’re showing signs of new life as the year ends and China’s stock markets finally settle down.

The story has been somewhat different in New York, with 2015 likely to be remembered as the year of the reverse IPO  for Chinese companies. Some 3 dozen New York-listed Chinese firms have announced privatization plans in the first half of the year, though many of those came into question after the summertime sell-off in China. But with the sell-off in the past, many of the buyout bids are being revived, often at higher prices than the original offers.

All that said, let’s quickly recap the latest Hong Kong IPO news, led by the planned Hong Kong offering for Haidilao, one of China’s best-known restaurant chains specializing in food cooked in hot pots. (English article) The deal is still in the early stages and it doesn’t appear any documents have been filed yet. But the fact that the $300 million fund raising target is included in the reports seems to indicate that planning is quite advanced, and I would expect this to be one of the bigger deals we’re likely to see in the first half of 2016.

Chilly Reception for Banks

Next there’s Bank of Zhengzhou, which is the third regional lender to list its shares in Hong Kong in the last month, following recent IPOs by Qingdao Bank (HKEx: 3866) and Bank of Jinzhou (HKEx: 416). (previous post) Bank of Zhengzhou aims to raise up to $700 million, which is roughly the same as the other 2 banks, and has set a price range of HK$3.85 to HK$4.21. (English article) But it’s likely to fall far short of its target, like the other 2, due to lack of investor interest in these local lenders that are facing a bad-debt crisis as China’s economy slows.

Finally there are the Wuxi PharmaTech and Taomee deals, which are seeing both companies move closer to their ultimate goal of leaving New York and re-listing in China. Wuxi Pharma has completed its deal at the original price of $46 per American Depositary Share (ADS) first announced in April (company announcement). But the final price for Taomee’s newly signed deal is actually about 5 percent higher than the price originally announced back in June. (company announcement; Chinese article)

Taomee’s higher price extends a recent trend by hotel operator Homeinns (NYSE: HMIN) and online dating site Jiayuan (Nasdaq: DATE), which both announced similar hikes last week. (previous post) That means it’s quite possible that many of the other deals that have been stalled since their initial announcement in the first half of the year could soon come back to life, including new offer prices that are 5-10 percent higher than original ones.

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