Feiyu Technology International is the latest company seeking to tap capital markets in Hong Kong before year-end. The mobile game developer began taking orders on Tuesday, and will close books ahead of its IPO by the end of the month after an accelerated bookbuild.
The issuer will offer 300 million primary shares between HK$1.85 and HK$2.55 per unit under the joint leads of Bank of America Merrill Lynch and Citi. There is a 15% greenshoe option, which will add up to 45 million shares to the deal and boost the total size to $113 million. The base deal is $99 million.
The 300 million shares represent 20% of Feiyu’s enlarged share capital. Its market capitalisation is $400 million. Some 90% of the offering will be made available to institutional investors and the remaining 10% will be allocated to the Hong Kong retail tranche.
Weibo, China’s version of Twitter, will come in as a cornerstone investor and has pledged to purchase $15 million of the company’s stock, according to sources close to the deal. Weibo raised $285.6 million its own IPO in April.
At HK$1.85 and HK$2.55 per unit, Feiyu is being marketed at 8.2 to 11.2 times its 2015 earnings.
The Fujian-based company has five mobile games and two web games. Its most successful games are fantasy martial arts role playing game Shen Xian Dao and Carrot Fantasy, a series of mobile games. It plans to launch nine new games in 2015, according to its prospectus.
Feiyu’s comps, Baioo Family Interactive and Forgame Holdings, have had tumultuous years performance-wise, factors that could have a negative impact on its IPO.
Baioo, the children’s online game operator, raised $196 million in its Hong Kong flotation in April. It was down from its initial target of $250 million, largely due to the Candy Crush saga at the time — King Digital, the maker of the popular Candy Crush game, plummeted 16% in its market debut mid-March. This coincided with a drop in US technology stocks generally and forced Baioo to price its shares at the bottom of its indicative range.
Baioo shares have plummeted 63% so far this year as its third quarter revenues fell by 8.6%. Although the third quarter is generally peak season for gaming companies due to the summer holidays, Baioo’s results suffered as children showed a faster-than expected preference for playing games on mobile devises, and area where Baioo lacks the distribution platform and experience.
In addition, Baioo’s new game Magic Fighter, which launched in the third quarter, did not perform as well as expected.
Another main comp, Forgame Holdings, the Chinese online gaming that raised HK$1.6 billion ($206 million) in its Hong Kong listing last September, has also had an abysmal year. It is down 71% year-to-date due to poor financial results as average monthly paying users for online games declined sharply. The company reported a net loss of Rmb21.8 million ($3.6 million) for the first six months of the year, compared with a net profit of Rmb163.6 million for the same prior-year period.
Revenues meanwhile were fell 41% to Rmb337.5 million for the six months ending June 30, 2014 from Rmb573.7 million in the first six months of 2013.
Falling monthly paying users, delayed web game launches and a general webgame market slowdown have all contributed to weak results for Forgame, and JP Morgan analysts are underweight the stock due to low visibility for new web game launches in the second half.
Indeed, a lack of visibility may have an adverse affect on Feiyu, which notes in its prospectus that its short operating history makes it difficult to assess its future prospects and earnings potential.
Feiyu’s IPO comes amid a spurt of ECM activity in Asia as issuers scramble to list before year-end. CGN Power, China’s largest nuclear energy producer, won commitments from 18 cornerstone investors and is seeking to raise as much as $3.6 billion, a flotation that could surpass HK Electric’s $3.1 billion listing in January.
Recently, China Maple Leaf Education Systems became the first school operator to list in Hong Kong, a deal that had retail investors flocking in droves to get a piece of the company. The retail tranche was oversubscribed by 195 times, bringing the total deal size to $123 million.