China Companies Line Up for U.S. IPOs

China Companies Line Up for U.S. IPOs

Debut of 58.com Thursday Will Show Market’s Appetite

PAUL MOZUR in Beijing, DANIEL INMAN in Hong Kong and TELIS DEMOS in New York

Oct. 30, 2013 3:45 p.m. ET

When China’s equivalent of Craigslist sells shares in New York on Thursday, it will offer the best indicator yet of whether U.S. investors have found a taste for Chinese stocks again after a two-year case of indigestion. 58.com Inc. is set to list on the New York Stock Exchange on Thursday, the first in a string of Chinese Internet companies looking to debut in the U.S. in coming months. A strong reception for 58.com would indicate that investors have become more comfortable with Chinese shares after alleged accounting fraud at a handful of companies hammered some of these stocks two years ago and led to a broad retreat by U.S. investors.Early signs seem positive. Both 58.com and Qunar Cayman Islands Ltd., which helps users search the Chinese Internet for deals on plane tickets and hotels and is also set to sell shares this week, have raised their projected price ranges ahead of their debuts.

“58.com and Qunar are service-sector and e-commerce plays. Even if China’s economic growth slows, if it becomes a more service-driven economy these companies are going to do extremely well,” said Jeff Papp, a senior analyst at Oberweis Asset Management.

Oberweis manages the China Opportunities Fund with $170 million in assets under management. Mr. Papp said Oberweis was weighing investing in 58.com and Qunar.

But skepticism still lingers in some quarters.

Short seller Muddy Waters Inc. accused Chinese Internet security company NQ Mobile Inc.NQ +11.26% of overstating its user base and market share in China. NQ has denied the accusations. Its shares, which trade on the Nasdaq Stock Market, fell 62% between Oct. 23 and Monday, though they jumped back 25% on Tuesday to $11.01. Other Chinese Internet companies also fell following the report.

LightInTheBox LITB -6.60% Holding Co., a Chinese online shopping company, jumped 7.9% on its debut in June but is down about 14% since then.

“It is still extremely important to be focused on the quality of the company and whether it is doing something different from its competitors,” said Alistair Way, manager of the Global Emerging Markets Equity Fund at Standard Life InvestmentsSL.LN -3.98% in Edinburgh, which manages assets worth £179.6 billion ($288.1 billion).

Mr. Way’s fund invested in China’s VIPShop Holdings Ltd. VIPS -3.07% in November 2012, after its IPO.

A disappointment when it listed in the U.S., VIPShop has almost tripled in value so far this year, and bankers say its turnaround has paved the way for other Chinese offerings.

Other Chinese companies planning U.S. listings include Sungy Mobile Ltd., which makes mobile applications, and 500.com Ltd., an online sports lottery service.

Alibaba Group Holding Ltd. is considering a U.S. listing, too. If the Chinese e-commerce giant chooses to list in New York instead of Hong Kong, it would likely be the biggest U.S. listing since Facebook Inc. FB -0.78% It would dwarf Twitter Inc., whose planned debut is currently the focus of Wall Street’s attention.

Alibaba would be a much bigger IPO than 58.com or Qunar. Alibaba is expected to raise about $10 billion in an IPO, according to people familiar with its thinking.

Modeled after Craigslist, 58.com helps individuals and small- and medium-sized companies across China recruit employees, rent property, buy and sell used cars, and place classified ads.

In addition, the company makes use of local offices to train merchants in how to use the services to attract smaller advertisers from China’s interior.

The company is banking on more of these small businesses advertising and selling online. At the same time, it argues in its prospectus that the quick spread of smartphones across China has made it easier for more people to list and buy more goods for sale there. The company is profitable but tiny: It earned net income of $300,000 in the first half of this year on revenue of $58.8 million.

From 2009 to 2011, 67 companies from China went public in the U.S. through IPOs valued at a combined $8.26 billion, according to Dealogic.

But the area as a whole fell under a cloud after major accounting firms resigned or were dismissed from a handful of companies, in most cases citing concerns about the accuracy of information provided by their clients. Since 2011 there have been five Chinese-company IPOs in the U.S., raising $337 million.