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LDK Challenges Market With Mega Offer LDK大规模融资方案挑战市场

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An interesting test is looming for the struggling solar cell sector, with one of the worst-performing players, LDK Solar (NYSE: LDK) preparing a massive new note offering worth 5 billion yuan, or nearly $800 million, that will test both the market and Beijing in different ways. If market forces prevail and Beijing declines to step in, I wouldn’t be surprised to see this offer collapse completely due to lack of investor interest, potentially resulting in a financial crisis for LDK that could see it become one of the first major victims of the ongoing crisis among major solar cell makers. So let’s have a more detailed look at the situation. Under its new plan, LDK wants to float 5 billion yuan in new bonds, starting with a first tranche worth about $80 million on December 7, or next Wednesday. (company announcement) It says funds raised will be used to pay off short term debt, meaning LDK is sorely in need of cash to repay some of the billions of dollars in debt it owes that will be maturing in the near term. My guess is that the first tranche of this offering will meet with little or no investor interest unless LDK offers very high interest for the notes, which face a very strong possibility of never maturing if the company ultimately has to file for bankruptcy. But LDK, which recently reported a massive $114 million third-quarter loss and is bleeding cash like many of its peers, can hardly afford such high rates. Thus the only other alternative would be for a major state-run institution, under orders from Beijing, to step in and buy the  notes at a more reasonable interest rate to keep the company afloat for now. The only problem is that kind of intervention would be a clear case of a direct state subsidy to the industry, just as the US is investigating China for unfairly subsidizing its solar cell makers — a charge that Beijing strongly denies. The result of all this is that Beijing will be under huge pressure not to intervene in this case, and the market is also unlikely to want to help this struggling company, meaning LDK’s options could be extremely numbered at the end of the day.

Bottom line: LDK’s upcoming $800 million offering in new notes is likely to fail without help from Beijing, which is under immense pressure to show it doesn’t unfairly support its solar cell makers.

Related postings 相关文章:

◙ Solar Slips Squarely Into the Red 太阳能行业陷入全线亏损

◙ China Retaliates With Own US Solar Probe 中国启动对美可再生能源补贴调查

◙ New Solar Signals: Slowdown Easing Amid Writedowns 太阳能企业减计库存 行业或将开始摆脱危机

 

Baidu, Sohu Highlight China Shell Games 百度搜狐拆分业务让金融骗局再度受关注

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When was the last time you saw Google (Nasdaq: GOOG) or Amazon (Nasdaq: AMZN) spin off one of its units into a separately listed company or inject assets from its parent company into a listed unit? The answer of course is that they never engage in any of these common practices of big China state-run companies, but that hasn’t stopped the country’s booming private Internet sector from becoming increasing masters at such games. The latest machinations in these games have seen Sohu (Nasdaq: SOHU) sell its online game information site, 17173.com, to its separately listed online game unit, Changyou (Nasdaq: CYOU) for a nifty $162 million (English article; Chinese article), while search leader Baidu (Nasdaq: BIDU) is spinning off its struggling e-commerce site YouA into an independent company complete with its own venture funding. (English article) Of course, the granddaddy of this kind of shell game is Shanda Interactive (Nasdaq: SNDA), which listed on the Nasdaq many years ago, then spun off its core online game business into a separately listed company, Shanda Games (Nasdaq: GAME), and is now in the process of trying to spin off its  online literature unit into yet another public company, Cloudary, even as Shanda Interactive itself attempts to de-list as its share price languishes. (previous post) Leading web portal Sina (Nasdaq: SINA) has also engaged in this kind of financial shell game. This situation has evolved in part because many of China’s Internet companies often stray from their core business into completely unrelated areas — a practice seldom seen at major Western firms. But from an investor perspective, this kind of game results in a lack of transparency, as parent companies can often manipulate situations to make results of these spun-off companies appear on their own balance sheets if the results are positive, and then magically disappear if the business is performing poorly. Shares of Chinese web firms are currently mostly the playthings of speculative short-term investors; but if these companies ever want to be taken seriously by longer-term institutional buyers, this kind of game playing is one of the first things that needs to stop.

Bottom line: The latest spin-offs by Baidu and Sohu cast a spotlight on China web firms’ fondness for financial shell games, which will continue to scare off long-term institutional investors.

Related postings 相关文章:

◙ Shanda Moves Ahead With Privatization 投资者对盛大私有化仍持保留态度

◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

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

Mid-Sized Firms Suffer First In Internet Bubble Burst 中国互联网泡沫破裂

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Malaise continues to inflict the overheated Chinese Internet realm, with veteran new media firm Kongzhong (Nasdaq: KONG) falling into the loss column and newly listed children’s website Taomee (Nasdaq: TAOM) reporting a shrinking profit, as both fell victim to stiff competition. I won’t go too much into the reports of these two companies, but Kongzhong reported a $17 million loss, compared with a profit a year earlier, as its Internet games business saw an especially sharp drop. (company announcement) Likewise, Taomee, whose shares have lost about half their value since its June IPO, saw its third-quarter profit shrivel by about a third as it opted to focus on customer loyalty over profits. (company announcement) Meantime, Chinese media are reporting that another small firm, online shoe retailer Letao, has slashed its marketing budget by 80 percent as competition erodes its bottom line as well. (English article) What all this tells me is that China’s long-awaited Internet bubble is finally starting to burst, as these kinds of small- to mid-sized companies are typically the first to feel the pinch when a correction starts to hit an overheated sector like this. By comparison, bigger companies like Baidu (Nasdaq: BIDU) and Sohu (Nasdaq: SOHU) continue to report relatively healthy growth in both sales and profits, though even they are seeing profits come under pressure amid rising costs in the face of fierce competition. Look for more suffering among mid-sized Internet firms like Taomee and Kongzhong in the months ahead, with many likely to get purchased, merge with similar-sized rivals or simply go out of business in the next 12-18 months. In a rare piece of good news from the space, faded new media firm Linktone (Nasdaq: LTON) has announced that it escaped a potential de-listing by managing to get its stock price above the $1 threshold demanded by the Nasdaq. (English article) Indeed, the company’s shares have been above $1 for 15 days now, though such an accomplishment is hardly cause of celebration for a company whose shares have mostly moved lower in its turbulent history as a publicly traded company.

Bottom line: The latest gloom from Kongzhong, Taomee and Letao show mid-sized Internet firms are suffering as China’s Internet bubble starts to burst, with bigger pain ahead in the next 12-18 months.

Related postings 相关文章:

◙ Parade of China Money-Losers Report to Wall Street 多家中国企业亏损凸显市场竞争激烈

◙ Renren Finds Video Bargain in China Web Bubble 人人网低价收购56网 凸显中国互联网困境

◙ More Internet Froth in Alibaba Valuation, Dangdang Price War 阿里巴巴估值奇高凸显网络泡沫

Video Makers On Cusp of Renaissance 视频制作商或迎来美好时代

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I’ll take a break now from all the Internet turmoil to take a look at an area that’s showing much more promise these days, namely the sector that makes video content for TV stations and increasingly Internet video sites. In fact, I’ve already talked about the big potential for this space on several occasions, following landmark licensing agreements this year between some of the major Hollywood studios and leading video sites operated by Youku (NYSE: YOKU), Tudou (Nasaq: TUDO) and Sohu.com (Nasdaq: SOHU). (previous post) But now the China Daily has published an article showing just how well the video production industry is doing, with prices for TV shows and movies soaring in the last 5 years. (English article) According to the article, individual episodes for popular TV shows can now fetch up to 1 million yuan each, or about $150,000,  compared with just several thousand yuan per episode just 5 years ago. The article cites a recent instance that shows how hot the market has become, with Sohu recently paying 30 million yuan for nearly 100 episodes of the hit TV series “New Princess Pearl”, or about 300,000 yuan per episode. As a veteran reporter on the China media scene, I remember the old days when TV show and movie makers complained that it was impossible to earn any money in the Chinese market, where individual media giants held monopolies in all major cities and thus could demand ridiculously low prices from programmers because they had no competitors. What a difference 5 years makes. Of course, for the investor the big issue is that most of the programmers aren’t publicly traded, though a handful like Huayi Brothers (Shenzhen: 300027) are well positioned to capitalize on the boom. I expect we’ll see a lot more of these companies go public in the near future as business soars. But that said, the popular saying “what goes up must come down” is probably true here also. Put simply, this spending frenzy by the video companies is probably unsustainable over the longer term, simply because there aren’t enough advertising dollars to support such rapid growth and it will also take time for Chinese consumers to gradually get used to the idea of paying for such online content.

Bottom line: Booming demand for video content is likely to spark a renaissance for movie and TV program makers, though a correction for the sector is also likely in the next 2-3 years.

Related postings 相关文章:

◙ Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

◙ Tudou Surprises With Profit, Licensing Deal 土豆网意外扭亏为盈视频分享市场的好兆头

◙ PPLive, Phoenix Video Initiatives Offer News Alternative 凤凰新媒体与PPLive的新尝试

Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

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Shanda (Nasdaq: SNDA) head honcho Chen Tianqiao, lacking any major news to boost languishing shares prices of his 2 public companies, is resorting to playing games to lift their stocks, first through a privatization plan for one and now with a massive special dividend for the other, Shanda Games (Nasdaq: GAME). (company announcement) The only problem is, another online game operator, Giant Interactive (NYSE: GA) tried a similar plan earlier this year with mostly disappointing results. So let’s have a look at Shanda Games’ new plan, which will see it offer a one-time cash dividend of $1.02 per American Depositary Share (ADS) on December 20, translating to roughly a 25 percent payout based on its price of about $4 when the announcement came out. Shanda shares jumped just $0.43 per share, or around 11 percent, after the announcement came out, or less than half the amount of the special dividend, indicating investors think the company’s share price may already be overvalued. Chen’s ploy looks especially risky in light of Giant’s experience earlier this year, when it offered a massive special dividend that amounted to 40 percent of its share price at the time. (previous post) Giant shares jumped a little after the announcement, though nowhere near the amount of the special dividend, but then crashed after the actual payout and now trade nearly 20 percent below their levels when it first announced the dividend. There’s no reason to believe that Shanda Games’ dividend won’t see a similar outcome, with investors boosting the stock to collect the one-time payout and then quickly selling it once the dividend passes. Of course this new move from Chen comes just a week after he launched a bid to privatize his other listed company, Shanda Interactive, whose shares are also in the doldrums along with those of many other US-listed China stocks. (previous post) Instead of playing these kinds of deal-making games, Chen needs to sit down and create an exciting roadmap for his companies to convince investors they have strong long-term growth potential, which will do much more to boost their share prices.

Bottom line: Shanda Games’ new offer of a large one-time dividend is the latest bid by founder Chen Tianqiao to boost the company, but is ultimately bound to disappoint.

Related postings 相关文章:

◙ Shanda Moves Ahead With Privatization 投资者对盛大私有化仍持保留态度

◙ Giant Fires CFO, Offers Dividend to Placate Investors 巨人网络CFO辞职 高额分红以安抚投资者

◙ Grentech Follows Shanda in Privatization Ploy 国人通信赴盛大网络後尘宣布私有化

Gap’s China Plan: Chasing the Middle End Gap锁定中国中产阶层

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US retailer Gap (NYSE: GPS) is bringing its formula for selling cheap but trendy clothing to mainstream young Chinese, with a plan that looks like a smart way to tap the nation’s growing urban middle class despite its late arrival to the market. Executives from the US chain, an early pioneer in the trendy, affordable clothing business whose image has become a bit faded lately, detailed their China plans during a trip to the region late last week for the opening of their first Hong Kong store. (company announcement; English article) According to reports from the event, the company plans to have 15 stores in China by the end of its current fiscal year, and then to triple the number to 45 within a year of that. Frankly speaking, the company’s arrival to China is a bit late, as big foreign names like Japan’s Uniqlo (Tokyo: 9983), Hong Kong’s Esprit (HKEx: 330) and Sweden’s Hennes & Mauritz (Stockholm: HMb) have all operated in the market for several years now. But that said, all these foreign chains do quite well in China, and their stores are often packed on weekends with eager young urban shoppers eager to spend their hard-earned savings on the latest trendy but affordable clothes that these companies all offer. I see no reason why another big name like Gap can’t survive in this market, especially if it can find the right clothing mix and create a marketing campaign to establish itself as a trendy fashionable brand with strong overseas roots. Of course, that might be easier said than done, as Gap’s image in the US has faded quite a bit in recent years as the brand ages and younger, trendier chains like H&M take a bigger slice of the market. Still, if General Motors (NYSE: GM) can take a nameplate like Buick, considered a stodgy older brand in the US, and make it into a popular mainstream name in China, then there’s no reason why Gap can’t draw on its years of experience to do the same thing in China, potentially building the market into one of its top global contributors in the next 10 years.

Bottom line: Gap’s entry to China, despite its lateness, could stand a good chance of success, catering to young Chinese with limited funds but who still want to buy the latest trendy clothes.

Related postings 相关文章:

◙ Wal-Mart Buys Into China E-Commerce 沃尔玛进军中国电子商务

◙ Investors Feast on Sun Art 高鑫零售首日挂牌表现抢眼

◙  Welcome to the China Dollhouse: Barbie Packs Up Shanghai Camper

China Retaliates With Own US Solar Probe 中国启动对美可再生能源补贴调查

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The building trade war between the US and China over subsidies to solar panel makers is heating up further still, with China launching its own anti-dumping investigation against US firms in a clear retaliatory move for a similar ongoing US investigation. Amid all this latest wrangling in Beijing and Washington, major industry players are announcing a new wave of specific and potential plans to build new production bases in the West and emerging markets, indicating people are starting to feel a bit uneasy with the dominant slice that China has taken of the market. First let’s look at the latest development in Beijing, which has seen China’s Commerce Ministry launch an investigation into government subsidies for US solar panel makers. (English article) I won’t even begin to comment on the absurdity of such an investigation, as a big portion of US solar panel makers are no longer in business after many were forced into bankruptcy this year as the sector struggles through its worst-ever downturn amid huge overcapacity. For that same reason, any punitive tariffs by China probably wouldn’t have much effect, since there aren’t many US solar panel makers left to punish and China hasn’t built many solar power plants to date anyhow. But the tone in the debate is certainly counterproductive if nothing else, and the two sides should sit down and try to work out a solution that everyone can live with rather than engaging in this kind of angry rhetoric. Meantime, Japan’s Panasonic (Tokyo: 6752) has just announced a plan to spend more than $500 million to build a major new solar panel production base in Malaysia. (company announcement) I’m not sure if the world needs another major new solar panel plant right now; but that move, combined with recent comments by LDK (NYSE: LDK) and other China manufacturers that they may build new plants outside China to avoid US punitive tariffs, show that the industry is clearly concerned about too much concentration of its resources in China and wants to diversify its production to other markets. Those kinds of moves could help to diffuse this crisis, though Beijing and Washington will also need to show a bit more willingness to work together to iron out their differences to avoid a counterproductive trade war that could really hurt the development of the alternate energy sector.

Bottom line: China’s launch of an unfair subsidy investigation against US solar firms is a counterproductive move that won’t do anything to help settle a growing trade war over the matter.

Related postings 相关文章:

◙ Solar Slips Squarely Into the Red 太阳能行业陷入全线亏损

◙ Beijing, Yingli Send Mixed Solar Signals 英利和中国政府似乎“背道而驰”

◙ New Solar Signals: Slowdown Easing Amid Writedowns 太阳能企业减计库存 行业或将开始摆脱危机

Luxury Cars Zoom, But Who Profits?

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China’s formerly red-hot auto market looks set to stall this year, but you would never know that from looking at luxury car sales. The only problem from a domestic investor’s point of view is that the market is almost completely monopolized by foreign firms, Germans in particular. The country’s 3 top luxury car sellers, Volkswagen’s (Frankfurt: VOWG) Audi, BMW (Frankfurt: BMW) and Mercedes-Benz (Frankfurt: DAI) all saw their China sales rise 30 percent or more in the first 10 months of this year. (English article) That turbo-charged growth came even as the broader market stumbled and the country’s main industry association forecast just 5 percent growth for the year, as Beijing took steps to tame inflation and ease congestion on the nation’s busy roads. The logic behind the strong luxury sales isn’t hard to see. As China makes it more difficult for people to buy new cars through measures such as restricting new licenses and phasing out incentives for cheaper, more gas efficient models, a bigger percentage of sales will go to the luxury segment that is far less price sensitive. What’s more, luxury cars in China now account for just 8 percent of the total car market, compared with 10-20 percent in the West. Right now the best bets from China to capitalize on this trend are limited. Audi’s China partner, FAW Auto, isn’t publicly traded, and even if it was the brand looks set for a rough road as it rapidly loses share to its aggressive German rivals. BMW also makes cars in China with partner Brilliance China Automotive (HKEx: 1114), while Mercedes-Benz parent Daimler works with privately held BAIC, which has said for several years now it wants to make an IPO. BAIC has shown aspirations to build its own higher-end models with its purchase of several older models a couple of years ago from Swedish automaker Saab, which is now near death. Another interesting play could be Geely (HKEx: 165), which is trying to reposition its recently acquired Volvo nameplate as a luxury brand in China. (previous post) I’m dubious whether this plan can work, but if it does then Geely could see itself also in a strong position as sales of its more mainstream cars slow in this latest downturn.

Bottom line: The German automakers are best positioned to capitalize on China’s luxury car boom, but domestic names like BAIC, Brilliance China and Geely could also benefit.

Related postings 相关文章:

◙ China Autos Set for Long Slowdown

◙ Chery, Luxury Cars Hit New Speed Bumps

◙ Geely-Volvo: Good First Year, But Fork in the Road Ahead

Alibaba’s Incredible Shrinking Profit Growth 阿里巴巴盈利呈加速放缓趋势

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Leading B2B e-commerce platform Alibaba.com (HKEx: 1688) has become skilled at putting out its results during times when the least people are watching, as it aims to deflect investor attention from the fact that its profit growth is following a worrisome shrinking pattern. It released its first quarter results in May at the height of its headline-making spat with 40 percent stakeholder Yahoo (Nasdaq: YHOO), and now it has just released an extremely lackluster third-quarter report over the US Thanksgiving holiday, when New York markets are closed and most investors are unlikely to see the results when they get back to work next week. (English article; Chinese article) There’s good reason it doesn’t want too many people to see these results: they show that its third-quarter profit grew at an anemic 12 percent, even after it implemented steep price hikes for merchants who trade on its site in a bid to reignite growth as the actual number of merchants started to fall. (previous post) The 12 percent figure was less than half of the second-quarter’s 28 percent profit growth rate, which itself was down sharply from the first-quarter’s 37 percent growth rate. Do we see a trend here? Profit growth seems to be dropping by 10-15 percentage points each quarter, meaning we might actually see single-digit or no growth in the fourth quarter as the company’s prospects fade. Investors seem to have realized that Alibaba.com’s heady growth days are finished, at least for the next year or 2, as there don’t appear to be any real new growth engines for the company in that time frame. The latest results were actually in line with market forecasts, reflecting investors low expectations for the company, and Alibaba.com shares themselves are trading at half the levels of their 52-week high. Unless it can find some new magic soon, which appears unlikely, look for this stock to be stuck in the doldrums for quite some time and perhaps to even fall further still if a serious, more innovative competitor appears.

Bottom line: Alibaba.com’s profit growth will stall in the fourth quarter and into 2012, as it struggles for new revenue sources amid stagnation at its core B2B trading business.

Related postings 相关文章:

◙ Tencent and Alibaba: It’s Not Easy Being Big 腾讯和阿里巴巴：想当老大不容易

◙ Albaba Faces New Assaults From Merchants, 360Buy 阿里巴巴受到中小商户和京东商城的双重夹攻

◙ Alibaba.com Blows Smoke With HiChina Spin-Off Plan 阿里巴巴网络分拆万网放烟幕弹

Unicom, China Telecom in iPhone 4S 中国电信有望领先推出iPhone 4S Race

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I wrote 3 weeks ago that Apple (Nasdaq: AAPL) had overlooked China in the global roll-out for its newest iPhone, the 4S (previous post), in what looked at the time like a snub to the world’s biggest mobile market where it has had lukewarm relations with its main partner, China Unicom. (HKEx: 762; NYSE: CHU) Now it’s starting to look more like the delays may have been created by the telecoms regulator, which has apparently only recently “validated” the iPhone 4S for use on Unicom’s network, meaning Unicom could offer the hottest new Apple phone by year-end, according to Chinese media reports. Meantime, Chinese media are also reporting that smaller, more nimble rival China Telecom (HKEx: 728; NYSE: CHA), which has been negotiating with Apple for much of this year for its own iPhone deal, has finally signed such a deal, which could allow it to offer the 4S on its own 3G network by the end of this year. (Chinese article) Media have reported several times in the past that China Telecom was on the brink of an iPhone deal, but this is the first time I can recall reports that the company has actually signed a deal, meaning perhaps we could really soon see official iPhone service for China Telecom users. The stakes are relatively high in this race to offer the latest iPhone, as whoever launches the product first will get a first-to-market premium in the form of wide media coverage and extra hype for the product’s official China launch. Based on the current state of play, I would put my bets on China Telecom to win this race, as the company has shown a tendency to be far more market-savvy and aggressive this year than Unicom, which has squandered its chances to pick up market share despite owning China’s best 3G network. China Telecom has seen its share of the 3G market expand steadily this year, to about 28 percent in October from 25 percent in April, while Unicom’s share has stagnated at around 30 percent. If China Telecom does indeed win this race, look for its 3G market share growth to accelerate, which should eventually translate to its bottom line as it reaps profits from this more expensive service.

Bottom line: China Telecom is likely to beat Unicom in the race to be first to offer the iPhone 4S in China, helping it to further boost its share of the 3G market.

Related postings 相关文章:

◙ China Mobile’s TD 3G Fading Fast 中国移动3G网络前景黯淡

◙ Apple Overlooks China — Again 苹果再次撇开中国内地市场

◙ China Mobile: Poor 3G Approach Yields Weak Results 中移动3G策略不当 拖累公司三季度业绩

 

 

Latest Group Buying Turmoil Shows Up at 24quan, Meituan

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It’s Thanksgiving day in the US, but people in China’s turbulent group buying sector have little to be thankful for, as intense competition appears to have claimed a new victim in the form of a sub-site operated by 24quan. (Chinese article) According to Chinese media reports, the sub-site, called Zhongshan Zhan, has suddenly shut down and its merchants are refusing to honor its coupons. I checked 24quan’s main website (www.24quan.com), and it appears to be still functioning normally, so this report appears a bit unclear about what’s really happening at the parent company. But regardless of the specifics, this latest report, which cites a number of irate customers, reflects the current turmoil afflicting China’s group buying space, where consumer complaints are frequent and companies are bleeding cash. Industry leader LaShou’s pending New York IPO appears to be indefinitely suspended, as the US securities regulator looks into accounting issues (previous post), and there’s no sign that 55tuan, another major player, will be able to make its intended US IPO before the end of this year. (previous post) Another new media report reflecting the current chaos says that a site called Meituan has suddenly started offering all employees who have worked there for 6 months or more stock options. (English article; Chinese article) The company apparently denied the move was related to an upcoming IPO, which doesn’t surprise me. I suspect the move instead means something entirely different, namely that Meituan is worried about its own finances and is using these options as a way to retain employees who might be worried that their company might not survive long enough to make those options worth anything. The report says the options don’t vest until 4 years — which looks like an eternity in the current market. I would honestly be surprised if more than 10 percent of the current crop of group buying companies are still in business 4 years from now, and I’m guessing that Meituan won’t be among that small set that survives the upcoming industry clean-up which should begin in earnest in the next 6 months.

Bottom line: Reports of the shut-down of a unit of one popular group buying site and option awards at another are the latest signs of turmoil, which will result in an industry shake-up very soon.

Related postings 相关文章:

◙ Latest Group Buying Confusion Shows State of Chaos

◙ 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