Colby succumbs to market turmoil

Colby Net''s IPO postponement shows the depth of regional market volatility.

The signs in Hong KongÆs trendy Lan Kwai Fong restaurant district were almost right: ôColby Net is Comingö. The global sourcing company, Colby Net û owned by Hong Kong restaurateur Alan Zeman û had been preparing to take its company public. But potential investors will have to wait a little longer to get their hands on this companyÆs stock.

Market volatility forced the company and its underwriters HSBC Investment Bank to postpone the deal three days into the roadshow. With Nasdaq down 16% over that same period, Colby felt that any investors who bought the deal would be caught the wrong side of market volatility: if the markets carried on falling once Colby had priced, the investors would lose money. If the markets rebounded after such a large fall, taking Colby back up with them, then the company would have been sold too cheap.

Such market volatility meant the company and its advisers could not give potential investors a fair indication of what the price of the offering should be.

ôInvestors will not commit to an issue in those types of markets,ö says John Simpson, managing director, equity capital markets at HSBC Investment Bank Asia.

But the offering was not a typical Hong Kong dotcom bubble stock. The private company has been in business since 1975. It links 4,200 suppliers of apparel and other merchandise from all over the world with large buyers in OECD countries. In 1999 it had revenues of $750 million with profits of $20 million.

Due to new contracts signed this year, however, Colby will have revenues of over $2 billion in 2002. For the last few years, Colby has had a dedicated policy of linking its suppliers and buyers through an electronic data interchange system. But this has been proprietary, expensive and difficult to implement with all its 4,200 suppliers in countries as diverse as Bangladesh and Indonesia.

With the growing penetration of the internet, Colby decided to switch its interchange to an internet-based system, linking buyers and suppliers throughout the world in a much more cost effective way than it could before.

Market volatility

This is a classic example of the internet profoundly improving a companyÆs operations and bottom line. And investors should have been falling over themselves to get a chance to own a piece of the company.

Unfortunately, market volatility is so great at the moment, that companies such as this, with great growth prospects, integral use of technology and very strong management are finding it extremely difficult to navigate the choppy waters of international finance.

The company plans to come back to the markets after Easter to complete its $350 million-$500 million IPO. The stock will be listed on the main board of the Stock Exchange of Hong Kong giving the company an upper valuation of $2 billion û only one times 2002 revenues.

The issue will be a mix of new shares and shares being sold by the existing owners.The company plans to expand its business with the proceeds by buying other similar sourcing companies in goods that Colby presently does not cover.