Goldman Sachs has suggested that there may be up to 349 Initial Public Offerings (IPOs) taking place in China this year. But, it’s not the Chinese capital markets that those companies will be wanting. Chinese firms are still hell-bent on getting floated on the world’s biggest and best stock exchange, and rightly so. The US Stock Exchange is going to bring in greater traction in terms of publicity and image from around the world. On the NYSE? You’ve made it, haven’t you?
For the moment though floatation in China is about all they are going to get, by the looks of things. Between 2008 and 2011, there were 60 Chinese IPOs that took place on the New York Stock Exchange. But, things dried up when the Securities and Exchange Commission stepped in and asked for more detailed auditing from Chinese companies. It’s been six months without anything and not a Chinese company on the horizon at the NYSE. But, now they are back. But are they still doing as good as they did on the first day?
LightIn TheBox (LITB) was launched with an IPO share price of $9.50 (raising $79 million) just a few days ago. That rocketed by 22.2% (to $11.61) by the end of the first day of trading. It’s the first company that has been launched for half a year and it’s the first of 2013. Does this mean that they are back in the business of IPOs after having got their act together on auditing?
Whatever happens, LITB managed to boost other Chinese shares in a knock-on effect. Vipshop, which rose 3% on the same day too, now has a gain standing at 340% of its IPO price.
Ctrip International saw an increase that amounted to 6.3% to $32.91 on the day that LITB was launched.
Just one example of why the SEC asked for heightened restrictions and more detailed accounts was Sino-Forest. They came a cropper when Muddy Waters Research (now that’s a name!) published a report showing that the company had inflated its assets and its earnings to come out looking rosier than they actually were. Sino-Forest shares plummeted in 2011 by 82%. Its credit rating also went into nose-dive as it was downgraded by Standard & Poors from BB, to B+, then to just plain old B (in august 2011). In the space of just a few months, the company had lost everything and ended up being suspended by the Ontario Securities Commission due to actions that came to fraud (either knowingly or unknowingly (or at least, of which they should have been aware).
Rumor has it that Chinese companies going for floatation in the US were fiddling the books. But, it doesn’t look like they were alone. Take a look at Facebook’s IPO and it will smack of not-so-distant memories. Then, the IPOs stopped. Makes you think why the SEC didn’t think of that earlier?
According to a speech given as far back as 2011 for the Inaugural ‘Joseph Stiglitz Seminar in Finance’ (at the Cambridge Judge Business School), Andrew Karolyi of Cornell University had already addressed the problem of the US lagging behind other countries in the world in the 1990s where IPO activity was concerned. That was due to growth of IPOs overseas. The 2000s however changed that and made the situation look even worse as the strong growth not only increased but the number of IPOs taking place in the US by US firms also fell.
Today, with stronger regulations by the Securities and Exchange Commission, there might be a redressing of that situation and the US might not be lagging behind quite as much as has been previously suggested by research.
LITB is up again today by 1.84% at $14.86, which is +0.27. Vipshop Holdings Limited is down 1.03% at $30.64. Ctrip.com International Ltd. is down also at $33.22 (-1.95%) this morning.
Originally posted Chinese IPO Still Doing Good!
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