HSBC has pulled the planned listing of online financial news company Quamnet.com less than a week after postponing for a second time its listing of ColbyNet, a company that sources supplies for overseas retailers.
Quamnet had planned to list its shares in an initial public offering on Hong Kong's Growth Enterprise Market. ColbyNet, which wants to raise money to establish an internet-based marketplace, had hoped to list on the region's main board. HSBC says the market is too volatile, and investor sentiment towards internet stocks too negative, to proceed with either listing.
Last week ColbyNet said it would be "having discussions" with HSBC and was "evaluating" whether to continue with the bank. Quamnet says it's considering a number of options, including changing its sponsor or merging with another company.áA merger with a small listed companyáwould enable Quamnet to achieve a so-called backdoor listing. One possible vehicle for such a listing is Wah Fu International, a luggage maker, whose shares hit a 52-week low of HK$0.19 on 26 May and have since risen to just HK$0.32. Last week Wah Fu said in a statement to the stock exchange that it may invest in Quamnet.
"I feel comfortable that we will be listed within three months," says Dylan Tinker, Quamnet's chief operating officer. "I do not believe all this talk that the portal market in Hong Kong is depressed. The Hong Kong and China portals are still trading at twice the multiples of their US peers."
Asian valuations are high
Tinker, who ran the telecommunications and internet research department at Jardine Fleming for seven years, and at Deutsche Bank for one year, says US portals are trading at an average of $110 per daily page view. America Online trades at $100 per page view and Yahoo! trades at $138. By comparison, Hongkong.com trades at $220 per daily page view, Chinadotcomáat $135 and Sina.comáat $89, he says. "By definition the Asian portal market is not as depressed as the US if the valuations are still significantly higher here," Tinker says.
Still, investors have pushed down the shares of most internet-related companies on the GEM to below their issue price over the pastáfew months.áOnly two companies have been listed on GEMásince May, comparedáwith five in April. Of the most recent, only one was an internet company, compared with three in April. Companies can't expect to raise the kind of moneyádotcoms were raising just six months ago, analysts say.
"ColbyNet and its sponsor were overambitious to attempt a second launch in the current market conditions," says David Webb, editor of webb-site.com. "It was pitched as a ridiculously priced internet company and then came back as a ridiculously priced trading company."
Quamnet can't delay too long
Quamnet, which was founded in December 1998 and provides financial news and real-time Hang Seng stock quotes,áhasn't proceeded as far as ColbyNet ináits listing process. It hasn't issued a prospectus or set an indicative price for its shares. But if it doesn't launch its IPO within the next few weeks it will lose its opportunity and have to refile its application all over again. HSBC is in the invidious position of trying to launch theáQuamnet into an unreceptiveámarket or potentially losing the client altogether (even though it holds a 5% stake in the company.)á
"Quamnet is a pure content play at this point and investor sentiment is currently very weak for content plays," says Yuen-Kang Chau, co-founder of HKGrowth.com, an online company thatáprovidesánews and information on GEM. "It's not the quality of the sponsor or the company that's at fault, it's just the level of investor sentiment."
Yet demand hasn't dried up completely. Earlier this month Hong Kong-based Stareastnet.com, an entertainment portal that provides news and information on Chinese celebrities, managed to raise HK$170 million ($21.8 million). Yesterday it exercised an overallotment option of 25.5 million shares that netted it an additional HK$30 million. BNP Prime Peregrine, which managed Stareastnet's listing, says it hasn't pulled any of its IPOs so far, but concedes it isn't going forward with as many as planned.
"There is always a dynamic between sponsor and issuer and that sometimes results in timetables being rethought," says Frank Slevin, managing director of corporate finance at BNP. "Some issuers are not going to agree with what the market perceives to be the valuation of their company and make the decision to wait."
For sponsors, forced to choose between satisfying their clients and preserving their reputation, that could be a blessing.
