Renren, a Chinese Facebook clone, is set to raise as much as $584 million after opening the order books for its US initial public offering (IPO). The deal is likely to become another hot IPO as investors in the US clamour for a chance to buy into the leading social-networking site in the world’s most populous internet market.
Meanwhile, the deal will also have to contend with a growing controversy — some American critics are asking why Chinese sites should be allowed to list in the US, while Facebook is blocked in China. Renren’s domestic competitor, another social-network website, Kaixin001, is also reported to be preparing a share sale in the US.
Renren is known as a copycat of Facebook and has leveraged that model to create the leading real-name social-networking internet platform in China. It claims roughly 117 million active users as of March 31 this year, according to its IPO prospectus.
The company makes money from online advertising and internet value-added services. However, even though the number of internet users is growing quickly in China, many of the country’s internet companies are unprofitable, and Renren is no exception. It had net losses of $68.3 million and $61.2 million in 2009 and 2010, respectively, due to growing overhead costs.
However, Chinese internet companies don’t seem to need profits to attract the interest of US investors. The vast China market itself is the goal. According to a January 2011 press release by the Ministry of Industry and Information Technology of China, at the end of 2010, China had 457 million internet users and 859 million mobile users, of which 303 million accessed the internet through their mobile devices.
21Vianet, a loss-making Chinese data service provider, which is in the market for a $138 million US IPO, is said to have received good market demand.
Renren is selling 53.1 million American depositary shares (ADS) — 81% of them, or 42.89 million, are primary and 19%, or 10.2 million, are secondary. Each ADS represents three class-A ordinary shares.
The indicated price range is between $9 and $11, which suggests the company could raise $477.9 million to $584.1 million. The deal size could go up to $671 million if a greenshoe option of 15% is fully exercised, allowing the company to issue an additional 7.96 million primary shares.
The shares will be priced on May 3 and Renren plans to list them on the New York Stock Exchange (NYSE) on the next day. BoA Merrill Lynch, Credit Suisse, Deutsche Bank, Jefferies and Morgan Stanley are joint bookrunners of the deal.
Renren plans to use the proceeds from the offering to launch new services, invest in technology and research, and development activities, as well as expand sales and marketing businesses.
Last year, four internet companies — SouFun, ChinaCache International, Youku and Dangdang — raised a combined $786 million in their US IPOs, according to Dealogic. And, last month, Qihoo360 Technology, a provider of internet and mobile security products, raised $175.6 million. Shares in the company rose 134% on their first day of trading on the NYSE.