visionchina-launches-162-million-followon

VisionChina launches $162 million follow-on

The company issues 8 million new and existing American Depositary Shares in an effort to improve the liquidity of its stock.
Nasdaq-listed VisionChina Media, a Chinese out-of-home advertising company, has launched a follow-on offering which, based on the price at the close of trading on Friday, could raise around $162 million.

Of the 8 million American Depositary Shares (ADS) on offer, 1 million are primary while the remaining 7 million are existing shares that are being sold by shareholders cashing in on the significant rise since the company's listing. VisionChina was one of the most successful IPOs by a Chinese company last year, pricing its initial offering at $8 a share in December. The companyÆs share price closed at $20.34 on Friday, bucking the markets' downward trend.

Each ADS represents one common share. Before dilution from the new shares, the secondary ADSs being sold represent 11.25% of the company. A source close to the deal says that the follow-on will increase the liquidity of the stock, making it more attractive to investors.

The sellers include several of the company's directors and executive officers, who between them are selling a total of 3.1 million shares. Chairman and CEO Limin Li is offloading 815,726 shares, while directors Yanqing Liang and Yunli Lou are selling 1.1 million and 1.2 million shares respectively. Other major sellers include GSPS Asia Limited, an indirect wholly owned subsidiary of the Goldman Sachs Group, which is selling 896,618 of its 5.3 million shares. None of the major selling shareholders are offloading their entire stake in the company.

The company has 60,160 digital displays distributing content in 16 Chinese cities. Many of these displays are on buses, but there is some diversification in other locations, such as the subway in Beijing. The displays show real-time broadcasts of shows from local television networks. The company gets revenue by selling advertisements in the breaks between programmes, or in the form of soft advertisements that are embedded into the show.

Last month the company released a healthy earnings report. Gross profits in the second quarter of this year were $11.9 million, an increase of 64.5% on the $7.2 million generated in the first quarter of the year, and a massive increase of 775.5% on the $1.4 million that the company earned in the second quarter of 2007.

The company expects to receive around $20 million from the follow-on and it has expressed its intention to use the proceeds for general corporate purposes, which may include purchasing complementary businesses.

Investors might be a little doubtful about the Chinese advertising sector after last week's listing of China Mass Media International Advertising (CMM). Pricing was postponed and a revised price range reduced the IPO size by almost 35%. The company made its debut on Monday August 4 and, by the end of its first week of trading, it had fallen by 14.7%, down to $5.80 a share from the listing price of $6.80.

Although CMM may fall under the broad category of Chinese advertising companies, it mainly sells space on television networks. Sources suggest that VisionChina, as a company that focuses on out-of-home advertising, should instead be compared with other companies in the same sub-sector, such as AirMedia Group and Focus Media Holdings.

ôIt's certainly not the cheapest in the arena, but it is a company that is delivering results and expanding into new markets,ö says a source. VisionChina is trading at 33 times predicted 2008 earnings, which makes it much more expensive than AirMedia which is trading at 22 times, and Focus Media which is trading at 15.6 times.

The bookrunners for the deal are Credit Suisse, Merrill Lynch and Morgan Stanley. The deal is expected to price on Thursday August 14.
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