ColbyNet revisits IPO as bricks and mortar company

As one of the first to withdraw a planned IPO following the meltdown in technology stocks, ColbyNet is trying again, this time presenting itself as a bricks and mortar company.

In April, when ColbyNet tried to list its shares on the Hong Kong Stock Exchange, it priced them at between HK$2.68 and HK$3.88 and presented itself as a burgeoning e-commerce business. Its aim was to raise as much as HK$4 billion ($513.2 million). But the global decline in technology stocks spiked its hopes and it withdrew its offer.

Today it's trying again. This time however, it's marketing itself as a bricks and mortar company that uses technology as a handy add-on. The Hong Kong-based company is pricing the 1.03 billion shares on offer at just HK$1.40 to HK$1.80, an optimistic but not unreasonable level for a traditional industrial company, analysts say.

Colby's about-face reflects its determination not to be tainted by investors' growing skepticism of internet stocks, even as its business becomes increasingly internet-based. Such is its paranoia that it is expending almost as much breath telling people what it isn't as what it is. The company sources supplies for overseas retailers. It's been in business for 25 years and is profitable. Now it wants to move its business online รป but in a cloak-and-dagger fashion.

"ColbyNet is not a technology company, exchange or internet marketplace," the company said in a statement announcing its new listing plans. "The technological changes to our business that we plan to implement are simply additional tools we will use to create amazing efficiencies in the supply chain."

Yet in its prospectus ColbyNet makes clear that the technological changes it is planning go beyond providing "additional tools" to dramatically reorganizing the business to place technology at the core of its development and transfer existing trading business into ColbyNet.

"The Group aims to transform its existing global network for the sourcing of apparel and consumer products by utilizing internet technology to create an e-marketplace," it says.

So how should investors value ColbyNet? As an internet company or a bricks and mortar company? Probably a bit of both, analysts say. Like rival Li & Fung, which also recently set up an internet-based arm, ColbyNet has the potential to use its electronic marketplace to streamline the distribution process for its customers. Ironically, given its current repudiation of anything that could associate it with the dotcom bubble, analysts say it is an ideal company to benefit from the internet.

"Asia is a manufacturing and export region and that's where costs can be cut out of the system," says Alan Wong, an analyst at Indosuez W.I. Carr in Hong Kong. "Colby can reduce costs by eliminating some of the middlemen in the process."

Still, if Wong had to choose, he'd invest in Li & Fung rather than ColbyNet. The two companies will trade at fairly similar price to earnings ratios: Li & Fung at 52 times expected 2000 earnings and ColbyNet at up to 45 times earnings. But Wong expects Li & Fung to return 30% on employed capital, while he expects ColbyNet to return as little as 6%. In March Li & Fung sold 60 million existing shares to institutional investors for HK$32.50 each, raising HK$1.95 billion to finance its internet business.

ColbyNet says it plans to use HK$156 million of the proceeds of its share sale to transform itself from a "trading intermediary" to an "internet intermediary". It plans to use HK$640 million to invest in traditional "bricks and mortar" sourcing companies that it will then integrate into the ColbyNet infrastructure as part of the development of its e-marketplace. And it will use HK$86 million to repay outstanding property mortgages.

ColbyNet says it expects net profit before extraordinary items to rise to at least HK$130 million, or between HK$0.038 and HK$0.040 a share depending on the offer price, up from HK$70 million in 1999.

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