Bottom line: NetEase could abandon a newly announced New York IPO plan for its media arm if it can find a suitable buyer, while a previously announced New York listing plan by ZTO Express could be revived before year-end.
What’s shaping up as a quiet year for Chinese IPOs in New York has just gotten a small boost, with word that online gaming giant NetEase (NYSE: NTES) has made an initial filing to list its respected but financially-challenged news portal business. Meantime, rumors are building for what’s likely to be one of next year’s biggest offerings from Ant Financial, the financial services affiliate of e-commerce giant Alibaba (NYSE: BABA) and owner of the Alipay e-payments service. But in this case, Ant is shooting down the latest buzz that specific plans are in place for a Hong Kong IPO next year.
While NetEase would mark a relatively rare piece of good news for New York IPOs by Chinese firms, its new filing hardly guarantees such a listing will occur. Good examples of similar outcomes are solar plant builder Recurrent Energy and parcel delivery firm ZTO Express, both of which discussed New York listings this year that have yet to happen.
The withering of New York IPOs for Chinese firms owes to a number of factors, most notably the introduction of many new alternatives closer to home in the last 5 years. That development has caused many US-listed Chinese companies to launch privatization bids over the last 2 years, with an aim to re-listing at home at higher valuations.
But New York is still a reasonable option for profitable companies with big growth potential, and 2 of China’s “Big 3” Internet firms, Alibaba and online search giant Baidu (Nasdaq: BIDU), are both listed there. NetEase is also listed on the Nasdaq, which is probably one of the major reasons it has chosen New York for a possible listing of its media arm that includes its news portal, one of its oldest businesses.
NetEase first announced plans to spin off the portal business last month, though it didn’t specify if it would sell the unit or make an IPO. (previous post) The company has apparently decided on an IPO as one of the strongest options, saying it has made an initial confidential filing to the US securities regulator for such an offer. (company announcement; Chinese article)
There’s no additional detail, and I suspect NetEase only disclosed the information after Chinese media reported the story citing unnamed sources. I would say there’s still a strong possibility NetEase would rather sell the unit than make a separate listing, with a 50-50 chance for each. That’s because the portal business’ revenue is almost certainly declining, and a merger with a larger rival like Sina (Nasdaq: SINA) or Phoenix New Media (NYSE: FENG) would give it a better longer-term chance for survival.
A NetEase abandonment of this latest listing plan would hardly be new, since both Recurrent Energy and ZTO have also gone missing since disclosing similar plans earlier this year. Recurrent Energy is the solar power plant-building arm of solar panel maker Canadian Solar (Nasdaq: CSIQ), and first announced plans for a New York IPO nearly a year ago. (previous post) Word of ZTO’s IPO first emerged back in February, but has gone mum since then. (previous post)
One of my contacts previously told me that Recurrent Energy probably scrapped its plan due to tepid demand, while another source said the ZTO plan may still be alive and could happen before the end of the year. But clearly neither plan is moving ahead very quickly, which probably reflects investor skepticism in New York due to China’s slowing economy and stiff competition in both the new energy and parcel delivery sectors.
We’ll close with a quick mention of Ant Financial, not because there’s any major new developments but more because it’s likely to become one of the hottest offerings of next year. Ant was originally planning to list in China, but abandoned that plan due to a near-freeze on new offerings due to the regulator’s concerns over market volatility. Previous reports have indicated Hong Kong would be the company’s next choice. But Ant has officially denied the latest rumors of plans for a $10 billion listing in Hong Kong, saying there is no specific timetable yet for such a specific IPO. (Chinese article)
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