Update: After publishing this originally, a Qunar spokeswoman pointed out that Goldman Sachs was among the investment banks underwriting its IPO. So that changes the tenor of the last part of the post, which says that no premium investment banks were involved in the offering.
A long awaited year-end fund-flurry of fund raising by Chinese tech firms is gaining momentum, with online travel sites Qunar and Ctrip (Nasdaq: CTRP) leading the charge as investor interest finally returns to the market. Qunar has just made the first public filing for its long-delayed IPO, while Ctrip continues to dazzle the markets by raising the size of its recent mega bond offer for the second time, underscoring strong demand from investors.
These latest 2 developments certainly look good for Chinese tech and other venture-funded firms that have been waiting for more than a year to make IPOs in New York and Hong Kong. I’ve forecast an end to the prolonged IPO winter a couple of times before, including one right around this time last year, so I’m slightly reluctant to predict the end yet again. But at least this time we’re seeing several major new fund raising activities, indicating this latest thaw could finally have some resilience.
Let’s start off with the Qunar news, as it marks the second major New York public IPO filing by a Chinese tech firm this month. The last time we saw 2 filings so close together came more than a year ago at the beginning of 2012, when car rental specialist China Auto and discount retailer Vipshop (NYSE: VIPS) both filed to make New York IPOs. The China Auto offering ultimately failed (previous post), while Vipshop’s IPO also debuted weakly.
The only major New York IPO by a Chinese tech firm so far this year has been from e-commerce firm LightInTheBox (NYSE: LITB), whose stock initially surged after its June debut. The shares later gave back most of the gains, though they still trade about 15 percent above their offering price. Earlier this month online classified advertising site 58.com became only the second major firm to publicly file for a New York IPO this year, seeking to raise up to $150 million. (previous post)
Now media are reporting that Qunar, which is controlled by leading search engine Baidu (Nasdaq: BIDU), has made its first public filing for a listing on the New York Stock Exchange. (English article; Chinese article) The offering would see Qunar raise up to $128 million, and the company has set an initial price range for its American Depositary Shares (ADSs) at $9.50 to $11.50.
I was somewhat surprised to see that Qunar’s IPO underwriters are Deutsche Bank and Stifel. Deutsche Bank is relatively big, though I wouldn’t consider it in the same ranks as some of the most premium banks; and Stifel is a relatively second-tier player. By comparison, 58.com’s offering is being underwritten by 3 top-tier banks, Morgan Stanley, Credit Suisse and Citigroup.
That could hint that Qunar’s offering isn’t quite as attractive as 58.com’s, and I suspect a big part of that reason could be because Qunar may still be losing money. The latest reports say Qunar booked $107 million in revenue for the 12 months through June, but there’s no mention of profit. Meantime, 58.com has said it recently became profitable — a major incentive for investors who have lost interest in money-losing Chinese tech firms.
From Qunar let’s quickly look at Ctrip, which this month became the latest top-tier Chinese Internet firm to make a major bond offering. Ctrip’s initial plan envisioned raising $500 million through a convertible note offer; but since then it has raised the size twice to a newly announced $800 million, after investors exercised their rights for overallotments. (company announcement)
The strong demand for Ctrip’s bonds should certainly help Qunar, though I should also point out that Ctrip should earn around $800 million in revenue this year — making it 8 times larger than Qunar. Qunar could get a boost if it gets a strategic investment from Ctrip just before the IPO, a development I previously said might happen. (previous post) At the end of the day, I would expect we’ll see the 58.com offering perform a bit better than Qunar’s, though both should do respectably.
Bottom line: Qunar’s IPO should price at the mid-point to lower end of its range, but could get a boost if the company receives a strategic investment from Ctrip.