Chinese IPOs sticking close to home
(Shenzhen Daily/Agencies)
Updated: 2005-07-11 15:18

 China Techfaith Wireless Communication Technology Ltd. and Hurray Holding Co. Ltd. are unique among Chinese companies that have gone public this year.

They are the only two Chinese companies that have gone public so far this year to list their shares in the United States. They raised a combined US$212.3 million, according to data provider Dealogic.

Last year 10 Chinese IPOs, with a combined value of US$3.93 billion were listed in the United States during the year, according to Dealogic.

IPO trackers cite numerous reasons for the decline in Chinese companies listing on U.S. markets, including concerns over corporate governance requirements, a normal dip after an active year, increased liquidity in the Hong Kong stock market, investor concern over China?ˉs economic outlook and the poor performance of past Chinese IPOs.

"If we went back 12 months, there was a flow of deals and the shares came out pretty quickly," said a senior equities banker in Hong Kong. However, "performance (is) not being anywhere close to expectations. I think investors are once bitten twice shy."

Of the 10 Chinese IPOs listing in the United States last year, seven trade below their offering price. Some deals were hurt by concerns over their quality of disclosure and others have been hit by profit warnings.

Rather than pursue IPOs, some Chinese companies were choosing alternative methods to access U.S. investors, IPO experts said.

"Companies are coming to the United States to raise capital, they are just doing it through 144A offerings in the institutional market as opposed to SEC-registered public offerings," said Robert DeLaMater, a partner at law firm Sullivan & Cromwell LLP in New York, who has worked on numerous IPOs.

Such offerings allow companies to sell securities to qualified institutional investors without registering them with the U.S. Securities and Exchange Commission.

"In many cases, issuers are concluding that, at least for purposes of their IPO, they don't really need to reach beyond the institutional investors," said DeLaMater, who was formerly the resident managing partner of his firm's offices in Hong Kong and Tokyo.

Another very recent factor that could contribute to the lack of Chinese IPOs in the United States was the fray over CNOOC Ltd.'s US$18.5 billion bid for Unocal Corp., experts said.

The bid by CNOOC, a Chinese State-controlled energy firm, is higher than a rival offer from U.S. firm Chevron Corp. But it has encountered opposition from some U.S. lawmakers, who want the Bush administration to review it to determine whether the offer poses any threat to U.S. national security.

"I think there's been some concern as to whether the excitement over the CNOOC-Unocal transaction will have any spillover into the market as far as receptivity by investors for Chinese companies," said Steven Robinson, a co-managing partner of the Shanghai and Beijing offices of law firm Hogan & Hartson LLP. Robinson also has worked on a number of IPOs.

Romeo Dator, a portfolio manager of U.S. Global Investors' China Region Opportunity Fund, said he was not seeing a lot of interest for Chinese offerings at the moment.

This year, two of the three largest IPOs in the world came from Chinese companies China Shenhua Energy Co. Ltd. and Bank of Communications.

But the fact that they are not listed in the United States did not completely preclude U.S. investors from accessing them, Dator said. "Hong Kong ... is a fairly liquid market, and it's not that hard to actually invest there," he said.

Dator said the current lull could help many Chinese companies by giving them a few more years to develop stronger track records before attempting to go public. It could also give bankers a higher comfort level in taking these companies public if they had more time to get comfortable with U.S. regulatory requirements, he said.

Many IPO followers were not overly concerned with the decline in deals, noting the year is only halfway through.

"You get a wave of deals and then there's a quiet period," DeLaMater said. "I don't think there's any long-term concern. This is more of a cyclical drop off.?±

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