ColbyNet postpones IPO; could ditch investment bank

Frustrated ColbyNet, forced to postpone its IPO for the second time amid poor investor takeup, may ditch its investment bank, HSBC, as it prepares for a third attempt in the fall.

ColbyNet is rapidly turning into a laughing stock with its on-off plans to list its shares on the Hong Kong Stock Exchange. The company has called off its offering for a second time, barely a week after announcing it was on again, citing "extreme volatility" of global stock markets. It's planning a third attempt this autumn, but may ditch investment bank HSBC before going ahead.

Hong Kong-based ColbyNet, which sources supplies for overseas retailers, first tried to list in April, when it priced the 1.03 billion shares on offer at between HK$2.68 and HK$3.88. On 30 May it said it would list again, this time offering the shares at just HK$1.40 to HK$1.80. That still wasn't low enough for investors who would rather invest in rival Li & Fung.

"I felt the price was still too high," says Stuart Winchester, senior fund manager at Dresdner RCM Global Investors, which has $4.3 billion under management. "They're up against a pretty tough barometer in Li & Fung and in the current market, where there's just too much volatility, you're not getting paid to take risk."

ColbyNet's listing is being coordinated by HSBC, which is also the lead manager. The bank says that although investors would have been willing to buy the stock during the two-week pre-marketing period ending 17 May, they changed their mind after the market subsequently plunged, then rose.

"Volatility increased during the roadshow and investor sentiment became much more fragile," says Joe Simpson, HSBC's head of equity capital markets Asia. "In the pre-marketing environment things seemed to be stabilizing, and then the market plunged again quite drastically. People were just making the statement that they were afraid of the delay between allocations and listing."

ColbyNet, which is hoping to raise money to build an electronic marketplace to help match buyers and sellers and streamline distribution for its customers, says it's determined to try listing its shares again once the market has settled down. That probably won't be until the autumn, the company says.

"Most experts believe that the markets could continue to be weak until after the summer," says Dow Famulak, ColbyNet's chief operating officer. "We will not, however, delay the listing any longer than is necessary."

An autumn listing, though, may be earlier than ColbyNet's own investment bank would like. "Under current circumstances it would be more realistic to go in the new year with certain targets that the company has stated already in place," says Simpson. "If, however, you have a dramatic improvement in market sentiment then clearly we would like to go as soon as possible."

Either way, ColbyNet concedes it could find it difficult to regain credibility with investors, and Famulak doesn't rule out choosing a different bank to lead its next foray into the market. "It's fair to say we're going to have discussions with our investment bank," Famulak says. "HSBC has been our bank for 25 years and we have a good relationship with them, but we're evaluating the situation right now."

ColbyNet is particularly frustrated because, unlike many internet companies that have come to the market with no profit and little prospect of any profit, ColbyNet has been a profitable business for 25 years. The company expects net profit before extraordinary items to rise to at least HK$130 million ($17 million) in 2000, or between HK$0.038 and HK$0.040 a share, depending on the offer price.

"ColbyNet could still get the listing away," says Jeremy Sutch, an analyst at ABN Amro. "It's the pricing that's the issue, not the company." Still, if it's unsuccessful, Li & Fung could try to acquire it, though not at the price it is proposing for its IPO, analysts say. Li & Fung trades at 52 times expected 2000 earnings. At the price it proposes to list at, ColbyNet would trade at between 40 and 45 times prospective earnings.

"An acquisition is certainly something that Li & Fung would consider, but their criteria is typically not to pay more than 10 times price to earnings," says Sutch. ColbyNet says it isn't in discussions with Li & Fung and doesn't envisage itself as part of a merged entity right now. Its priority is to develop its business, and part of that development means becoming a public company.

áLi & Fung declined to comment.

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