Chinese companies price US IPOs below range

VisionChina and WSP Holdings receive a mediocre reception on debut, but both close above their IPO prices.
In a further sign of how tricky the US primary markets have become, VisionChina Media and WSP Holdings both priced their initial public offerings below their indicated ranges yesterday.

Sources say both offers were covered within the original ranges but the bookrunners chose to cut the price in response to feedback received during the roadshow and to accommodate a few high quality names who had indicated their interest to invest at lower levels.

ôYou need to listen to investors in this kind of market where a lot of recent IPOs arenÆt doing that well,ö one source says.

VisionChina, an advertising network operator, fixed the price at $8 per ADS for a total deal size of $108 million. The final price compares with a price range of $9.50 to $11.50 and means the company ended up raising 30% less than its original top-end target.

WSP, which designs and manufactures seamless casing, tubing and drill pipes for the oil industry, raised $212.5 million after fixing the price at $8.50. This was 32% below the earlier top-end target based on the original price range of $10.50 to $12.50.

The lower prices, which positioned both companies at attractive valuations versus their peers, appears to have been the right call as both stocks found support around the IPO price levels when they started trading. But it also shows exactly how much the market has changed since September and October when almost every Chinese company that listed in the US routinely priced their IPOs at the top of, or even above, the original price range and then proceeded to gain substantially on their first day of trading.
Given the massive gains and high valuation multiples that were achieved during this period it is perhaps not that strange that these same Chinese companies got hit the hardest when the market turned, and the negative sentiment generated by this correction has spilled over to new listing candidates from China as well.

At the same time, US investors have become extremely cautious about adding to their portfolios in a jittery market this close to year end û especially given the growing uncertainty over what the Federal Reserve will do to interest rates when its rate setting committee meets next week. Following comments by various committee members, the futures market is once again pricing in a 50bp cut, which suggests there could be an adverse reaction in the market if it only lowers rates buy a quarter of a percent.

Yesterday alone, two smaller US-based listing candidates û diagnostic test maker BG Medicine and semiconductor manufacturer Entropic û lowered the original price ranges for their IPOs by 43% and 33% respectively, based on the bottom of those ranges. And during November, seven planned IPOs were pulled before pricing, according to US media reports. None of those were based in China.

Neither VisionChina nor WSP lowered their original price ranges, but used the regulatory window that allows the price to be fixed 20% above or below the range to give themselves some extra leeway.

VisionChina, which was brought to market by Credit Suisse and Merrill Lynch, rose as much as 17.5% in intraday trading to a high of $9.40, but fell back and during the final two hours, it hovered at or just above the $8 IPO price. It closed unchanged on the day.

This rather lacklustre performance came on a day when the Dow Jones index gained more than 1.7% points on the back of a government plan to prevent homeowners with ailing mortgages from losing their homes. The Dow added another 1.5% on Wednesday amid the increasing expectations of another rate cut.

One observer noted that many investors are still trying to get comfortable with VisionChinaÆs business model which involves joint ventures with local TV stations that provide real-time content for its mobile digital TV network that is installed mainly on buses. VisionChina sells advertising time during breaks between these programmes and also sells soft advertising time embedded in the programmes.

Other investor concerns included the fact that the company is a relative newcomer to ChinaÆs screen-based advertising industry and turned profitable only this year.

ôThe stock is quite small and definitely not something you have to own, especially since many investors already own Focus Media, and to some extent AirMedia,ö the observer says, referring to the two other Chinese screen-based advertisers that are listed in the US.

WSP gained 5.6% to a high of $8.98 in early trading, but it too spent most of the session hovering around the IPO price of $8.50. It finished four cents up at $8.54. JPMorgan was the sole bookrunner.

The company sold 25% of its enlarged share capital in the form of 25 million new ADS and has the opportunity to sell another 3.75 million shares through the overallotment option. At the final price, the company is valued at about 7.9 times next yearÆs earnings or at an enterprise value to Ebitda of 4.8 times. The latter pitches it at a discount to global peers like Argentina-based Tenaris and Vallourec of France, according to a source, and thanks to the below-range pricing that discount has become more attractive. Tenaris and Vallourec are both listed in the US.

About 20 investors were said to have participated in the deal.

VisionChina attracted a larger following of about 70 to 80 investors from across the region and the order book was 2.5 times covered at the final price.

The company sold 13.5 million new ADS, or 19.8% of its enlarged share capital. There is a 15% overallotment option that could boost the total size to $124 million. The final price values the stock at 14.5 times next yearÆs earnings, which compares with about 33 times for AirMedia and just under 30 times for Focus Media.

AirMedia has suffered comparatively little during the recent volatility and is still up 21% since its trading debut on November 7. Focus Media, which completed a follow-on offering on the same day as AirMedia closed its IPO, has fallen 14% in the same period.

Among the other Chinese companies that have listed in the US over the past couple of months agricultural solutions play Agria is currently trading 38% below its IPO price, online gaming firm Giant Interactive is off 22% and insurance agency CNInsure is holding only 3 cents above its offer price.

China Digital TV and IT solutions company Longtop Financial Technologies are still trading 95% and 40% above their respective IPO prices, but have also suffered significantly during the sell-off as indicted by the fact that China Digital has lost 43% since its first day high while Longtop has shed 30% from its peak.
¬ Haymarket Media Limited. All rights reserved.
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