The IPO Buzz: Chinese Moonshots vs Flops

 

Two Chinese IPOs popped like firecrackers to celebrate the Lunar New Year, when mooncakes are often given as gifts.

E-Commerce China Dangdang (DANG) is referred to as China’s Amazon.com (AMZN), and Youku.com (YOKU) is often described as China’s Netflix (NFLX) or YouTube.

 

E-Commerce priced its IPO at $16 per share on Tuesday evening, Dec. 7th. The IPO closed its opening day at $24.50 and on Friday, it finished at $32.79 — UP 104.0 percent from its initial offering price.

 

Youku.com priced its IPO at $12.80 per share, also on Tuesday evening, Dec. 7th. The IPO closed its opening day at $33.94 and on Friday, it finished at $37.50 — UP 193 percent from its initial offering price.

 

Bona Film Group Limited (BONA) priced its IPO at $8.50 per share on Wednesday evening, Dec. 8th. The IPO closed its opening day at $6.60 and on Friday, it finished at $6.96 — DOWN 18.12 percent from its initial offering price.

 

Sky-mobi Limited (MOBI) priced its IPO at $8 per share on Thursday evening, Dec. 9th. The IPO closed on Friday, its opening day, at $6 — DOWN 25 percent from its initial offering price.

 

There’s no explanation other than two were Internet-related companies (the pops or moonshots) and the others (the flops) were not.

 

By the end of this week, 40 Chinese IPOs will have made their debuts in the U.S. capital markets so far this year. This is a single-year record for the number of Chinese IPOs coming to Wall Street. The previous single-year number was 31 in 2007.

 

The earliest sightings of Chinese offerings date back to the start of the 20th Century. The then-Chinese government and railway companies sold gold-backed bonds to American investors. By the late 1940s, the flow of Chinese bond offerings ended — a casualty of war and politics. Not too surprisingly, the old Chinese government and railway companies no longer exist. However, it was not a total loss for the investors.

 

These certificates are said to have value in the obsolete securities market — as collectors’ items.

 

By 1996, things had turned around and the doors opened to Chinese IPOs. Fittingly, the first was a railroad company.

 

Guangshen Railway Co. Ltd. (GSH) priced its IPO at $19 per American Depositary Share (ADS) on May 13, 1996. The IPO flopped in the aftermarket, closing its opening day at $17.01 per ADS — DOWN 10.5 percent from its offering price. Since then, the stock closed at its high of $43.50 on Sept. 26, 2007, and on Friday, Dec. 10, 2010, it ended at $20.58 per share.

 

This brings us to 2010’s grand finale in the IPO market this week. Traditionally, bankers close their shops by mid-December and head out the door for about a month-long winter break.

 

This week, bankers plan to offer 10 IPOs, which are expected to raise about $2.3 billion. And the favorite, according to investment professional, is another Chinese deal.

 

iSoftStone Holdings (ISS – proposed) is a Beijing-based IT services provider. The company offers its services and solutions to technology, communications, banking, financial services, insurance, energy and transportation companies. iSoftStone, formed in 2001, has about 9,100 employees and a client base located in China, the United States, Europe and Japan. Among their clients are 71 Fortune 500 companies.

 

For the three months ending Sept. 30, 2010, iSoftStone reported net income of $2.1 million on net revenues of $51.1 million, compared with net income of $2.1 million on net revenues of $35.9 million for the same period a year ago.

 

Bankers plan to price 10.8 million ADS at $11 to $13 each. iSoftStone plans to offer 7.3 million ADS and selling shareholders plans to offer 3.5 million ADS.

 

The deal is to be priced on Monday evening to trade on Tuesday, Dec. 14.

 

If this IPO performs well in its debut, it may prompt some investors to leave a plate full of fortune cookies out for Santa.