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."