IPOs: Linekong Joins HK Queue, Dalian Wanda Woos

Bottom line: Linekong’s IPO should price in the middle of its range and post modest gains on its trading debut, while Dalian Wanda will price near the bottom of its range and debut flat to down slightly.

Linekong aims for December 19 trading debut

The year-end rush of IPOs is steaming ahead in Hong Kong, with online game operator Linekong popping back into the headlines for a year-end listing, as property giant Dalian Wanda starts to sell its own IPO story to investors. The former deal is relatively large for an online game company, aiming to raise nearly $200 million. Meantime, the latter could become the biggest IPO Hong Kong has seen in several years, with the potential to raise nearly $4 billion. Frankly speaking, neither of these deals looks too exciting to me as both come in sectors plagued by overcapacity and stiff competition. But that said, at least Dalian Wanda could be a good longer-term bet due to its status as one of China’s best-run and biggest commercial property developers.

Let’s begin with the Linekong deal, which was first in headlines back in late August when the company first announced its Hong Kong listing plan. (previous post) The company went silent after that, most likely due to weak investor demand and also perhaps to provide more information to the securities regulator. Now the company has just made a new filing for a deal that could raise up to HK$1.45 billion ($186 million) (Chinese article)

Linekong has already lined up several cornerstone investors to buy about $55 million worth of its IPO shares, meaning it still needs to raise about $130 million from the broader market. It set a price range of HK$9.8 to HK$13.1 per share, and is aiming to make its trading debut on December 19, which is probably the latest possible date before many people leave for the Christmas and New Year holidays.

The company previously announced relatively respectable financials, including revenue that nearly doubled over each of the last 2 years and profits that grew even more strongly. The company also has a nice looking stable of financial backers, including leading search engine Baidu (Nasdaq: BIDU), Japan’s Softbank and Chinese private equity giant Fosun (HKEx: 656).

Anyone getting a sense of deja vu after reading all this wouldn’t be wrong, since another game operator, Feiyu Technology (HKEx: 1022) made its IPO and trading debut last Friday, pricing shares at the middle of their range. The stock initially dropped, but came back and is now near its IPO price. I expect Linekong could perform a little better because of its larger size, and would expect its shares to post small gains on their debut.

Next let’s look at Dalian Wanda, which was approved last week for its Hong Kong IPO and has begun holding investor meetings to sell its offer to raise up to $3.9 billion. The company’s colorful Chairman Wang Jianlin was in Hong Kong on Monday, and his company now plans to sell 600 million new shares which are expected to price between HK$41.8 and HK$49.8. (English article)

A report on the Monday meeting quoted several investors and analysts saying Dalian Wanda was valuing itself on the high side, and expressed skepticism about the offer. That’s certainly consistent with earlier developments that saw the company scale back its plan from an original fund-raising target of $6 billion, as investors worried about overcapacity in China’s commercial real estate market and the nation’s broader economic slowdown.

All that said, I do expect that Dalian Wanda will be able to sell all of its IPO shares, though the stock could ultimately price in the lower half and possibly even near the bottom of the range. Prospects for the company could be choppy over the next 2 years as China’s real estate market absorbs excess space, but over the longer term I do think this company should emerge as a leader in China’s real estate space.

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