Bottom line: A slowdown in New York IPOs by Chinese firms at the start of the year was largely caused by the government shutdown, and activity could soon pick up starting with a listing by leading live broadcaster Douyu.
We’ll kick off my first post of the Lunar New Year with a look at New York IPO activity in the first part of 2019, or more precisely the lack of activity for Chinese companies. If this were any other year, I would say such a silence is probably normal, since in the past the first quarter has been a difficult period due to the western New Year holiday on Jan. 1 followed rapidly by the Chinese New Year, which this year fell on Feb. 5.
But this is no ordinary year, coming off a 2018 that was one of the busiest years for Chinese IPOs in New York and Hong Kong in quite some time. This year got off to a relatively quick start with a New York IPO filing to raise up to $300 million by financial technology (fintech) company Futu, which actually came at the very end of last year. (English article) Now the latest reports are saying video streaming site Douyu has just made its own confidential filings for an even bigger offering that could raise up to $500 million. (English article)
We’ll explore both of the offerings in more detail shortly, but first let’s take a look at what’s going on in the bigger picture and why activity has slowed so dramatically. I asked around to a few of my sources, and it seems the recent US government shutdown was the main culprits slowing things down.
According to a Baron’s report, only 285 of the Securities and Exchange Commission’s (SEC) 4,436 workers reported for work during the longest government shutdown in US history, as Congress battled with Donald Trump over funding for the latter’s planned wall on the Mexican border. Both sides seem reluctant to create a second shutdown when another deadline expires soon, and perhaps cries of protest from Wall Street are part of the reason.
One of my knowledgeable sources said the shutdown has wreaked a bit of havoc on the Futu deal, but also pointed out that the offering wasn’t set to price and start trading until early March. So perhaps that deal will still go forward more or less on schedule. The company would become China’s first online brokerage to list, and counts a number of major names led by Tencent (HKEx: 700) among its backers.
In terms of what’s to like or not, Futu definitely seems like a less controversial pick among the emerging group of Chinese fintechs that have hit the market over the last two years. That’s because it’s engaged in the relatively benign area of helping Chinese trade stocks in Hong Kong and the US, which shouldn’t attract too much controversy from its regulators at home. By comparison, many of the other fintechs that have had a bumpier ride are engaged in actual lending and other financing for Chinese consumers and businesses.
Next there’s the new filing by Douyu, which is still at the confidential stages according to the latest reports. The timing of this one looks specifically tied to the government shutdown, since the SEC was unlikely to be accepting new filings during the actual closure. Douyu is a leading player from the live steaming sector, which is both hot but also slightly controversial because regulators have moved to stop the transmission of controversial and sensitive material over such services.
Another company called Huya (NYSE: HUYA) became the first live streaming company to list in New York last year. (English article) Since then its shares have gone on a bit of a roller coaster ride, paralleling the broader industry. They nearly quadrupled at one point before falling back to earth, and now trade about 67 percent higher than their IPO price.
At the end of the day, I would expect the Douyu offering to move forward at a faster clip that Futu, unless of course there’s another shutdown. If and when it hits the market, it should do fairly well due to its own pedigree and dominant position in a hot are of the Internet here in China.