Chinese internet companies do not need to be profitable to attract the attention of US investors these days. Demand for Chinese internet players has surged in the US during the past few months, even though their earning potential has rarely matched their share prices.
Cashing in on that momentum, 21Vianet, a Chinese data service provider, is looking to raise $138 million before a listing on Nasdaq to fund the development of its data centre and network infrastructure. The company kicked off bookbuilding for the deal last Thursday and the offering has been “going well”.
Cisco Systems, the California-based global technology company, which owns a 2.2% stake in 21Vianet, has committed $10 million to the deal, according to sources.
Beijing-based 21Vianet, which started operations in 1999, hosts customers’ servers and networking equipment and provides interconnectivity that aims to improve the performance, availability and security of internet infrastructure. It offers network services to increase the speed and reliability of data across the internet. Its revenues rose in both 2009 and 2010, but its net losses widened to Rmb234.7 million ($35.6 million) last year from around Rmb17 million in 2008 due to growing overhead costs.
“US investors are looking at these firms’ long-term earnings prospects and are also interested in the vast China market,” said an analyst. “Companies like Youku don’t make any profit, but have had successful listings in the US.”
China’s internet community was estimated at 457 million users at the end of 2010, more than the entire US population.
21Vianet is offering 11.5 million American depositary shares (ADSs), all primary. Each ADS represents six Class-A ordinary shares. The indicated price range is between $10 and $12 each, which suggests the company could raise $115 million to $138 million.
Based on its 2012 forecast earnings, the valuation represents a price-to-earnings (P/E) ratio of 24 times to 29 times. By comparison, ChinaCache International, which provides internet and application delivery services in China, is trading at 25.7 times 2012 P/E. The company raised $84 million in a US IPO last October and its share price soared 95% on the first day of trading on Nasdaq.
21Vianet will fix the price of its shares on April 20 and list on Nasdaq under the symbol VNET the following day. Barclays Capital, JPMorgan and Morgan Stanley are managing the transaction.
Chinese stocks were responsible for four of the top five IPO debuts on US exchanges last year were. Youku recorded one of the largest first-day jumps. China’s largest online video company soared 160% in its trading debut on the New York Stock Exchange (NYSE) after it raised $202.9 million in an IPO in December.
The company said in February that it recorded a net loss of Rmb204.7 million in 2010, which was 12% more than the year before. However, that hasn’t hurt Youku’s share price, which is still trading significantly higher than its IPO price.
In a bid to improve earnings, Youku has raised its advertising budget this year, but analysts say the company will need at least two more years to become profitable.
More Chinese internet companies are seeking listings in the US this year. In March, Qihoo 360, a Chinese provider of internet and mobile security products, raised $175.6 million after pricing its US IPO 16% above the top of the range at $14.50. The stock rose 134% above its IPO price on its trading debut on the NYSE.
Renren, China’s answer to Facebook, is preparing for a US IPO later this year and is expected to raise around $500 million in a deal arranged by Credit Suisse, Deutsche Bank and Morgan Stanley.