In what should come as a surprise to no one, group buying site LaShou’s IPO has hit its first major roadblock, in a development I expect will probably kill its troubled offering even as the company tries to downplay the setback. Foreign media are reporting the cash-starved company, China’s largest group buying site, has temporarily suspended its IPO to answer questions from the US securities regulator about its accounting. (English article; Chinese article) I previously flagged this issue last month, when media reported that LaShou had to hire several second-tier investment banks, including Nomura and CICC, to underwrite the IPO after Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) resigned the case, reportedly due to concerns about LaShou’s accounting for some of its previous acquisitions. (previous post) Market buzz at the time said the new underwriters were encouraged to “expedite” their due diligence to speed up the process, with the heavy implication that company managers didn’t want their books examined too closely. The US Securities and Exchange Commission’s (SEC) latest decision to take a closer look at LaShou’s books no doubt comes in response to some of these early reports, and as US-listed Chinese firms in general come under the microscope for a recent series of accounting scandals that have hit all of their shares. According to the latest reports, LaShou is trying to assure potential investors that this delay is only a temporary setback, and that the IPO, which has already been scaled back to raise $75 million from an initial target of $100 million, will move forward as soon as all of the SEC’s questions are answered. But my guess is that the SEC may discover some “issues” with some of LaShou’s accounting, forcing the company to either reissue amended IPO documents, which would scare off many investors worried about the company’s credibility. Rather than face that kind of negative reaction that would not only cause major embarrassment but also hurt its future IPO chances, the chances are higher than LaShou will quietly withdraw its IPO application, citing poor market sentiment, and try again next year.

Bottom line: LaShou is likely to withdraw its IPO application following a reported closer examination of the company’s books by the US securities regulator.

Related postings 相关文章:

◙ LaShou Shifts Focus in IPO March 拉手网在上市准备中有意转变战略方向

◙ Lashou Files For IPO, Launching Race With 55tuan 拉手网与窝窝团打响IPO竞争战

◙ Lashou Ropes in Small Potatoes For US IPO 拉手网聘二流承销商赴美上市

I’ve watched with interest over these last few months as first Bank of America (NYSE: BAC) and now Goldman Sachs (NYSE: GS) end their love affairs with Chinese banks, reaffirming what many already knew: the great hopes that Western banks held out for these investments simply failed to materialize. Of course, the timing of the latest divestitures is more related to BofA’s and Goldman’s own capital woes than disappointments over their earlier investments in China Construction Bank (HKEx: 939; Shanghai: 601939) and ICBC (HKEx: 1398; Shanghai: 601398), respectively. Just a week after media reported a beleaguered BofA was mulling a sale of its remaining stake in China Construction Bank after already selling part of that stake earlier this year (English article), now more reports have emerged that Goldman is selling down more of its stake in ICBC. (English article) China bank shares have sunk somewhat in recent days in response to the news, but the prevailing sentiment seems to be more one of “who cares?” Observers are attributing the large exit by big foreign banks to a number of factors, including their need for capital and to reduce their exposure to Chinese banks’ and their volatile share prices. But at the end of the day, in my view this mass exit is all about disappointment. When the foreign banks first made these investments nearly a decade ago, they were hoping to find strong strategic partners who could help them tap the huge potential of China’s banking market. What they got instead was investments in big state-run elephants that had no interest in what their foreign investors had to say or offer, and continued instead to take all their orders from Beijing. Foreign banks finally woke up to that reality during the global financial crisis more than 2 years ago when the big Chinese lenders embarked on a massive lending spree under orders from Beijing. Going forward, look for these same foreign banks to quietly return to the market in the next few years, only this time they will target smaller, more commercially-focused banks that can act as true strategic partners in the promising China market.

Bottom line: The latest divestitures in big China banks by BofA and Goldman mark the end of chapter, which will be followed by a new round of investments in smaller, more commercially-oriented banks.

Related postings 相关文章:

◙ Beijing’s Financial Shufflle: Bankers or Regulators? 中国金融高层“大换血”

◙ Message to Beijing: Privatize the Big 4 Banks 对中国政府说：将四大银行退市吧

◙ ICBC Discovers China’s Latest Low-Cost Export: Currency 工行将从非洲人民币结算业务中获益

A new anti-monopoly investigation into China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU) over their broadband business has the business world buzzing, trying to figure out what it all means as one of China’s most powerful regulators pursues 2 massive state-owned enterprises. (English article; Chinese article) A number of key elements are at work here, but from my perspective this is largely a symbolic high-profile act by the central government designed to show the average Chinese citizen it can be just as tough against its own state-run companies as it can against private enterprises and foreign firms, which seem to be the target of its crackdowns most often. At the same time, I do think the government also wants to bring some price relief to the average Chinese person, who may feel that broadband fees are unreasonably high. Let’s review the facts. This anti-monopoly investigation, first hinted at in September (previous post), is significant for three major reasons. First, the government agency conducting the investigation is the NDRC, China’s state planner and one of its most powerful bodies, instead of the Commerce Ministry which usually handles anti-trust issues. Second, the NDRC has made a very high-profile confirmation of the investigation, again a sharp contrast for a central government that seldom confirms this kind of thing, let alone openly discusses it. Lastly, the whole issue of monopoly is really a bit of a farce here, as the current duopoly whereby China Telecom and Unicom control a big slice of the broadband market is a direct result of previous government policy, namely its restructuring of the country’s former fixed-line phone monopoly nearly a decade ago that saw it divide up China’s fixed line networks between Unicom and China Telecom. Considering all this background and the fact that a number of other broadband alternatives are fast emerging (previous post), the most logical conclusion I can reach is what I’ve already said, namely that this latest investigation is largely for show. At the same time, however, both China Telecom and Unicom will now come under heavy pressure to lower their broadband prices, which will result in some moderate profit erosion as broadband is one of their more lucrative businesses.

Bottom line: A new anti-trust investigation into China Telecom and Unicom is largely for show, but will also result in some profit erosion as both are forced to lower broadband fees.

Related postings 相关文章:

◙ Anti-Monopoly Regulator Makes Poor Choice in Chasing China Telecom 中国反垄断初试牛刀 选错对象

◙ Govt to Nat’l Cable Firm: Be Profitable 政府对国家广电公司的安排：商业化

◙ Little Sheep Gets Swallowed: Good for Yum, Good for China M&A 小肥羊被收购对百胜和中国是双赢

After frequently praising Sina (Nasdaq: SINA) for being one of China’s few success stories at building a diversified Internet business, I’m suddenly not so sure anymore after seeing its latest quarterly results. China’s leading web portal surprised me by posting a massive $336 million loss for the quarter, largely due to write-downs related to 3 areas outside its core portal business that previously looked like smart diversification bets in online real estate, retail and multimedia value added services (MVAS). (company announcement) I had previously pegged such assets, which were all looking quite successful earlier this year, as future growth engines to help protect Sina from downturns in the cyclical advertising market, which accounted for nearly 80 percent of its $130 million in third-quarter revenue. Making the situation even more worrisome, Sina made barely any mention in its earnings announcement about Weibo, its wildly popular microblogging site that has been likened to Twitter and which Sina hopes to eventually spin off into a separate publicly listed company. The only mentions of Weibo in the announcement said that Sina continues to invest in the service by adding more social networking services, and that its user base continues to grow. That’s certainly good news, though I would be surprised and even alarmed if Sina said that Weibo’s user base was shrinking. The announcement contains no information about revenue or profits for Weibo, which can only lead one to guess that there’s no good story to tell on either of those fronts, at least not yet. Considering strong competition in the social networking space already from Kaixin and Renren (NYSE: RENN), Sina is most likely finding that building up a broader social networking platform off Weibo is proving more difficult than it previously imagined when it launched its Boke Qing social networking site a few months ago. (previous post) Regardless of the situation, Sina is suddenly looking like a much shakier bet, lacking the ability to develop new businesses with good growth and profit potential over the longer term.

Bottom line: Sina’s latest results reveal a company that is having difficulty broadening beyond its core portal business, making it highly vulnerable to a looming downturn in China’s ad market.

Related postings 相关文章:

◙ Weibo Still Faces Crackdown Despite Govt Tie-Up 新浪微博难改“被监管”命运

◙ Sina’s Weibo: Growth Engine or Growing Burden? 新浪微博：动力or负担？

◙ Sina Joins China Love Fest With Wedding Site 新浪有意推出婚嫁频道