iDreamSky Technology has secured $158.8 million from its Nasdaq initial public offering after selling 7.7 million American depository receipts at $15 each, comfortably surpassing the original amount it sought to raise.
The Chinese mobile game platform operator initially aimed to price its shares at $12 to $14 and raise $124 million after the greenshoe, but strong demand from global institutional investors allowed the issuer and syndicate to boost the share price.
More than 300 institutional investors took part in the deal, with the institutional tranche heavily skewed towards long-only institutional investors, according to bankers close to the deal. Still, the book had a diverse range of investors, which included hedge funds, technology-focused funds and corporate investors across the US and Asia. It could raise as much as $190 million post-shoe.
“The book was many times covered, well into the double-digits, despite the order cap,” one banker told FinanceAsia. “It had very strong demand, especially from long-only funds. We have an allocation problem on our hands.”
“Everyone invested,” another banker added. “There was a very broad-based support.”
It was clear from the start of the bookbuild that investors were keen on iDreamSky, with Credit Suisse and JP Morgan handling the transaction. The institutional tranche was multiple-times covered hours after books opened last week, once the company locked in Tencent, Cheetah Mobile and Korean instant messaging company Line as concurrent private placement holders. All three pledged to invest $26 million combined in iDreamSky.
To avoid diluting the stocks, Tencent, which owned 27% in the company before the flotation, sold off some shares and now owns 22.7% post-shoe, according to the first banker. “The thinking here was that it’s better to get the liquidity in there,” he said. “It was just a matter of reallocating [the shares].”
Tencent is still one of the major shareholders.
At $15 a share, iDreamSky is being marketed at 10.9 times its 2015 earnings, lower than most of its comparables.
Its closest comp is King Digital Entertainment, maker of the popular Candy Crush game that held the largest US technology IPO since Twitter’s debut in November. iDreamSky is slightly more expensive than King Digital, which is trading at 8 times its 2015 earnings.
However, it comes at a discount to its other peers, including Boyaa Interactive, trading at 14.2 times its 2015 earnings, and Zynga, maker of the FarmVile series, which is trading at 46 times 2015 earnings.
Investors keen
A sovereign default in Argentina, poor economic data released from the US and China, and rising tensions over Ukraine and Gaza clearly did not deter sentiment, with bankers saying that investors looked past macro events and focused on iDreamSky’s underlying story.
“The company is unique. Normally when you deal with gaming developers, you have some one-hit wonders,” the first banker said, pointing to King Digital’s Candy Crush as an example. “iDreamSky aren’t developers. They’re publishers, and basically host and represent the country’s best games and distribute them throughout China.”
Risks abound when investing in Chinese technology companies, mainly around regulation and censorship. Beijing has a stranglehold on all of its sectors and the internet is no exception. Weibo, a micro-blogging service and China’s version of Twitter, became entangled in a public censorship dispute after it emerged that the company had a team of censors working to clean up content deemed unsuitable by the government.
However, sentiment is clearly in favour of the sector at the moment, and iDreamSky’s aftermarket performance will undoubtedly be scrutinised by global tech funds ahead of Alibaba’s highly awaited IPO, which could raise as much as $20 billion in September.
There have been eight Chinese technology issuers listing in the US this year. JD.com’s $1.8 billion Nasdaq flotation is by far the largest, followed by Weibo’s $285 million listing, Jumei International’s $280 million IPO and Cheetah Mobile’s $193 million flotation, according to Dealogic data.
