Muddy Waters NQ Call Fails to Halt IPOs: China Overnight

November 25, 2013 Leave a comment

Muddy Waters NQ Call Fails to Halt IPOs: China Overnight

Chinese companies are selling shares in New York at the fastest pace in two years less than a month after short seller Carson Block’s call spurred a 62 percent plunge in Beijing-based NQ Mobile Inc. (NQ) Three Chinese companies have debuted on U.S. bourses this month, raising $345.4 million, the most since May 2011, when six companies listed $1.3 billion of shares. 500.com Ltd., an online sports lottery service, raised $75.2 million in an initial public offering. Sungy Mobile Ltd., which makes applications for Google Inc. (GOOG)’s Android software, sold 7 million shares at $11.22. 58.Com Inc. (WUBA), an online marketplace similar to Craigslist, and travel agency Qunar Cayman Islands Ltd. (QUNR) have sold shares above their price targets since Oct. 30.Chinese companies refrained from tapping the U.S. markets in the second half of 2011 after short sellers such as Block’s Muddy Waters Research LLC accused companies including Sino-Forest Corp. of misstating assets. While Muddy Waters’s Oct. 24 sell call on NQ Mobile sank the stock, it didn’t slow IPOs backed by venture-capital firms from Menlo Park, California-based Sequoia Capital to Tokyo-based Jafco Co.

“The average IPO out of China is definitely much more scrutinized than it used to be and that’s helping to improve investor confidence in those deals,” Josef Schuster, the founder of IPOX Schuster LLC in Chicago, an IPO research firm, said by phone Nov. 21. “Some of the deals, they are backed by U.S. venture capital and are brought out by high-profile U.S. underwriters which cannot afford to bring a bad company to the market.”

Sina, Baidu

Since the dotcom bubble in 2000, 32 Chinese Internet companies have debuted in the U.S., according to data compiled by Bloomberg. Sina Corp. (SINA), the owner of China’s Twitter-like Weibo service, has more than quadrupled since it went public in April 2000. Baidu Inc. (BIDU), owner of China’s most-popular Internet search engine, has rallied 5,767 percent since its debut in 2005.

“We wanted to be together with the other Internet plays from China,” Zhengming Pan, the chief financial officer of 500.com, said in a phone interview from the New York Stock Exchange on Nov. 22. “We will get better research coverage and we will have a better investor base.”

In the face of pressure from short sellers like Muddy Waters, Pan said that demand was strong for the company’s IPO. The deal was priced at $13, the top end of a range.

NQ Mobile, a Chinese mobile-services provider, was accused of inflating revenue by Muddy Waters Research last month. The company has denied the allegations and transferred $103 million in cash to an account at Standard Chartered Bank to demonstrate its reserves.

Sungy Mobile

Sungy Mobile saw an opportunity to grow its brand in its largest market overseas with a New York share sale, Chief Financial Officer Jin Li said in a phone interview from the Nasdaq Stock Exchange. The Guangzhou, China-based company sold shares at $11.22, near the top of its expected price range.

“In the last few days, after we got the feedback from the investors, the results have been very positive, and we got very good orders from big-name investors,” Li said. “If you look at the downloads of our apps, the majority of that happens on Google Play. We happened to be ranked No. 3 in terms of total downloads as a publisher right after Facebook (FB) and Google.”

500.com surged 54 percent on its first day of trading to $20.01. Sungy Mobile climbed to $13.35, 19 percent above its issue price.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York rose 1.3 percent to 107.32 last week. LDK Solar Co. jumped after concern about the company’s debt eased. China Southern Airlines Co. gained 18 percent, leading the industry’s stocks higher. NQ Mobile advanced 12 percent.

To contact the reporter on this story: Matthew Kanterman in New York at mkanterman2@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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