People’s Daily Online started bookbuilding for its long awaited Shanghai IPO yesterday and nearly tripled the size of the deal after consultation with potential investors.
This is the first time that the Communist government has allowed investment in the editorial arm of a state-run media company. It is offering 69 million A-shares, or 25% of its enlarged share capital, at between Rmb20 ($3.16) and Rmb22.5, which suggests it will raise between Rmb1.38 billion and Rmb1.55 billion.
The higher end of the target amount is nearly three times more than the Rmb527 million offering it originally planned. The price range pitches the company at 46 to 51 times the firm’s 2011 earnings, which is slightly higher than the industry average of 43.87 times, according to a statement to the Shanghai Stock Exchange.
The deal’s bookrunner Citic Securities previously suggested a much lower price range of Rmb17.2 to Rmb19.2.
At the time, the web portal said it would use Rmb289 million of the total proceeds to expand into wireless services, Rmb146 million to upgrade technology and Rmb92.4 million to strengthen its editorial team. But it did not say how it will use the extra money now that it will raise 195% more than planned.
The sale has sparked controversy in China, as the state-owned mouthpiece makes a difficult transition to being a capitalist, profit-led business. The company is showered with taxpayers’ money and its revenue is heavily reliant on government contracts, but that business model will need to change if the company is to achieve sustainable growth.
Sales revenues increased 49.9% year-on-year to Rmb497 million in 2011 and net profit surged 73% to Rmb138 million, but this was largely thanks to more than Rmb37.8 million of tax benefits from the government.
The company reaps most of its profits from government contracts and publishing government announcements. It said its business of serving as a web portal to promote the party and enhance the influence of the party has proved to be stable and sustainable over the years.
The web portal is 80% owned by People’s Daily, while state-owned carriers including China Mobile Communications, China United Network Communications and China Telecommunications are also shareholders.
The government has given considerable financial aid to its top media groups in a bid to increase their influence abroad while retaining their prominence at home. People’s Daily launched its website in 2005 in a bid to compete with domestic rivals Sina.com and Sohu.com, but state-run media have proven less popular despite the government’s efforts.
People’s Daily Online is the 40th most-popular website in China, according to Alexa, a web information company, compared to Sina, which is ranked fourth, and Sohu, which is ranked ninth.
Other web operators of official media are also planning to tap the equity market. Xinhuanet, the news portal owned by Xinhua News Agency, is said to have hired CICC for a Shanghai IPO.
People’s Daily Online will fix its IPO price on April 19.