Shanghai-based EHi Car Service finally priced its initial public offering at Asia's close on Tuesday at the bottom end of its indicative range. The group raised $170 million pre-shoe via a Goldman Sachs- and JP Morgan-led offering.
This comprised a combined institutional and retail tranche, plus a concurrent private placement to three Chinese investors, which raised $50 million. The three numbered Dongfeng Asset Management, China Universal Asset Management and Ctrip.
About 50 investors participated in the deal after the majority of the original book pulled out following the publication of a FWP (Free Writing Prospectus) last Thursday, the day the deal was originally scheduled to price. This flagged the existence of allegations that EHi had been overstating the residual value of its car fleet - allegations that EHi Car strenuously denied.
Sources close to the transaction say about two thirds of the paper went to Asia and the rest to the US. The top 10 accounts also took up almost 80% of the total.
"The FWP meant the deal completely lost momentum," says one banker. "All the fast money accounts dropped out, but those that stayed did so because they believed in the company's growth story.
"This did mean there were some concerns about liquidity," he added. "But on the plus side it also means the secondary market is likely to be a lot more stable because there will be less flipping going on."
At the open, however, the deal immediately traded down 9.5% to $10.95 before stabilisation efforts kicked in, bringing it back to just below its issue price. But it then came under renewed pressure, closing the day at $11.70, down 2.5%.
Volume totalled 6.12 million shares.
At $12 per ADS, pricing came at 5.9 times 2015 EV/Ebitda. Given the cloud hanging over the deal, some might wonder why the group did not cede a little more on the valuation to try and compensate for the prevailing negative sentiment.
For fund managers, EHi Car's IPO presents a specifically Asian conundrum. Trying to queer the pitch of a rival's deal is not unknown in the region. But then neither are the corporate governance concerns, which have bedevilled a number of Chinese entities, not least those listed in the US.
When it is hard to know which to believe, it is easy to simply pass on a deal, which is too small to be a must hold.
