After a dismal first quarter, we’re seeing the latest signs of new life in the moribund market for offshore Chinese IPOs with the planned launch of 2 major new offerings later this week in Hong Kong. The pair of IPOs, one for brokerage Galaxy Securities and the other for a unit of oil major Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP), could raise up to $3.5 billion combined, following a dismal first quarter for new listings. The IPOs would also come as online retailer LightInTheBox seeks to launch the year’s first public offering for a Chinese company in New York later this month.Market reception to all 3 of these deals could easily set the tone for offshore Chinese IPOs for the rest of the year, as the trio represent a number of milestones. If its IPO prices at the top of its range, the IPO by Sinopec Engineering (Group) could raise up to HK$17.4 billion ($2.24 billion), becoming the largest offering by a Chinese company since People’s Insurance Company (Group) Of China (HKEx: 1339) raised $3.56 billion last November. (English article) The Galaxy Securities deal could raise up to HK$10 billion.
Those 2 offerings would come just 3 weeks after LightInTheBox made its first public filing for a New York IPO to raise up to $86 million, becoming the first Chinese company to attempt such an offering in the US in half a year. (previous post) I haven’t heard any updates on this particular offering, but previously predicted it would get a reasonably good reception from investors and probably price in the middle of its range.
LightInTheBox’s financials show that it was fast approaching profitability and could soon post its first-ever profits in the first quarter. That’s a critical element, since foreign investors have shown little or no interest in money-losing Chinese start-ups that have tried to list in the US over the last 2 years. The only 2 major companies to list in New York last year, discount online retailer Vipshop (NYSE: VIPS) and commercial-oriented social networking site YY (Nasdaq: YY), are both profitable.
Vipshop shares have soared more than six-fold since last September, in a sign that overseas investors were regaining some interest in profitable Chinese firms with strong growth potential. In the latest positive sign, YY late last week reported its revenues jumped 130 percent in the first quarter to about $50 million, as its profit soared 18-fold to $10.3 million. (company announcement) YY shares jumped 6 percent after the results came out, and now trade 74 percent above their IPO price of $10.50 when it went public last November.
So what does the future hold for these 3 new IPOs, and how does the rest of the year look? My guess is that this new stream of IPOs will do relatively well, as many investors are looking for some fresh names to buy after very few exciting new listings over the last year. What’s more, the recent IPO winter has resulted in a new era of realism among listing candidates, with only the strongest names choosing to move ahead with such offerings.
That’s a very important development, since the last IPO wave in 2010 and early 2011 saw many companies list in New York even though they were making little or no profits at that time. Two of the biggest names in that wave, Internet companies Youku Tudou (NYSE: YOKU) and Renren (NYSE: RENN), continue to lose money 2 years or more after their listings.
I would expect Sinopec Engineering and Galaxy Securities to make relatively strong debuts when they list, with shares of both rising in the 5-10 percent range or better over their first few trading weeks. LightInTheBox should also perform similarly when it makes its own IPO later this month, as interest returns among overseas investors to the China growth story.
Bottom line: New IPOs for Sinopec Engineering, Galaxy Securities and LightInTheBox are all likely to see modest success, paving the way for a revival in offshore offerings.