China takes Wall Street bull by the horns
China takes Wall Street bull by the horns
Steve James, Reuters, New York
Call it the new "China Syndrome."
The Peoples' Republic is 'de rigueur' on Wall Street this week
-- a visit to the floor of the New York Stock Exchange by Premier
Wen Jiabao on Monday, two hot initial public offerings grabbing
all the attention of investors, and the purchase of a firm
foothold on the Street by Xinhua news agency.
On Tuesday a Shanghai-based hotel and airline booking company,
Ctrip.com International, saw its share price double during its
first day of trading on the NYSE, while investors are bracing for
one of the biggest IPOs of the year -- the China Life Insurance
offering. This US$2.6 billion deal is
expected to price late on Thursday and start trading next
week.
Xinhua Financial Network Ltd., a news agency part-owned by the
Chinese government, said on Tuesday it will buy U.S. financial
news service Market News International Inc., based in New York.
Unlike the 1979 movie in which scientists feared a U.S.
nuclear plant meltdown would bore through the Earth to the other
side, the new "China Syndrome" has U.S. investors salivating at
an expected flood of Chinese IPOs coming in the opposite
direction.
"The economy is right, there (in China), to do these deals,"
said Sal Morreale, who tracks IPOs for Cantor Fitzgerald in Los
Angeles. "Ctrip turned from being very lukewarm to being
oversubscribed.
"Look at (Chinese Internet media firm) Sina, it has done well;
Internet companies have done well, China Life is in great shape.
"It's sort of like a new frontier," said Morreale. "These two
deals show the tremendous potential (of Chinese IPOs)."
In October, Sina posted a record quarterly profit and
predicted strong revenue growth would continue next year as it
raised its advertising rates up to 30 percent.
"Investors should keep an eye on what is happening in China
deals," said Morreale.
Francis Gaskins of IPO Desktop.com in Los Angeles said there
had been two key improvements in the last three years that
account for an increase in Chinese companies going public in the
United States.
Before 2000, despite strong economic growth in the Guangdong
province near Hong Kong, it was not evident to investors in the
results of companies thinking of doing IPOs.
"(But) There's a first-come, first-served attitude in the U.S.
where everyone wants to be first, and Ctrip showed that Chinese
firms now have that (competitive attitude)," he said.
Also, in the past there were no communications with Chinese
firms. "You couldn't get through to them, and their accounting
was suspect.
"But in the last three years they've cleaned it up, you can
talk to representatives in the United States and there are
companies making money and going to the (public) market.
"I think you will see more and it will be fast-growing, as
long as they keep their exchange rate undervalued," said Gaskins.
As Beijing took baby steps toward a free market, Chinese
offerings started to trickle in to the U.S. securities markets in
1996, starting with Guangshen Railway which offered American
Depositary Shares at $19 each.
Between 1996 and 2002, there were 28 China-based IPOs in the
United States, not including Hong Kong or Taiwan-based companies.
According to the IPO monitor 123jump.com, six Chinese IPOs have
more than doubled in price since going public.
Aluminum Corp. of China was priced at $17.69 on Dec. 5, 2001,
and is now trading at over $65 -- nearly quadruple its IPO price.
Netease.com is up over 167 percent on the Nasdaq over its IPO
price of $15.50 on June 9, 2000. And CNOOC was priced at $15.40 a
share on Feb. 2, 2001, and is now trading at nearly $44 on the
New York Stock Exchange.
John Fitzgibbon, editor of 123jump.com, was a little less
enthusiastic about talk of a Chinese IPO surge.
"Chinese deals on the New York exchanges have done well but as
for future Chinese deals? It's speculation, there's a lot of
chatter.
"But there is a tendency that it (China Life IPO) will get
things rolling."