Australia Jumps on U.S. IPO Bandwagon via China

Australia Jumps on U.S. IPO Bandwagon via China

Australian Companies Favor U.S. Listings for Their Chinese Businesses

DANIEL STACEY

March 4, 2014 5:39 a.m. ET

Australian companies are increasingly carving out their Chinese businesses for U.S. initial public offerings, but unlike many IPO aspirants, raising cash isn’t the motivating factor.

Encouraged by telecom operator Telstra Corp.’s TLS.AU +0.39% successful listing of two Internet-based Chinese businesses in as many years, Melbourne-based Seek Ltd.SEK.AU +2.83% is planning a U.S. IPO of its Chinese online careers site Zhaopin Ltd. later this year, which could give the site an edge over its competitors in the world’s second-largest economy.

Last year, eight Chinese companies that raised more than $10 million each via IPOs listed in the U.S., four times the number in 2012, according to data provider Dealogic. So far this year, three Chinese companies are eyeing U.S. listings.

“In China, companies gain credibility from listing in the U.S. among employers and customers that puts you on a slightly different level,” said Jason Lenga, Seek’s international director.

Seek, which has a market value of 5.76 billion Australian dollars (US$5.14 billion), has been upping its bets on Asia in recent weeks, recently buying out minority investors in Malaysian employment business Jobstreet Corp. 0058.KU +0.83% in a deal valuing the business at A$524 million.

“This is by no means a divestment—it’s nothing to do with us making money,” said Mr. Lenga.

Telstra took a similar view when it listed Chinese online car-trading site Autohome Inc.ATHM +15.97% on the New York Stock Exchange in December, raising $153 million in total, according to Dealogic. The IPO saw Telstra’s ownership of a company it bought for A$100 million more than five years earlier slip a tad to 66% from 71.5%, meaning it remains firmly at the wheel.

The Melbourne-based company “really didn’t need to raise capital,” said Neil Louis, Telstra’s executive director of mergers and acquisitions. The primary driver for the U.S. listing was to retain high-quality staff and to ensure better media coverage in China, he said.

Telstra has a market value of around A$63.5 billion, and its balance sheet was recentlybolstered by the sale of CSL Ltd. CSL.AU +0.08% , its Hong Kong-based mobile business, to HKT Ltd. 6823.HK +1.95% for US$2.43 billion and 70% of its Sensis directories business to U.S. private-equity firm Platinum Equity for A$454 million.

For Seek, Zhaopin remains central to its strategy of increasing revenues from China and it intends to retain a majority stake in the company following a U.S. IPO. Mr. Lenga said Seek is targeting small-to-medium enterprises that are beginning to place a higher value on quality recruitment.

To do this, 17-year-old Zhaopin needs to build trust in its brand. In China, going through the onerous process of preparing a prospectus and listing on a U.S. stock exchange is a shortcut to gaining this trust.

In China’s smaller provinces, where branding is key to Seek’s success, it is using an 1,800 person sales-and-relationship management team to tutor small-to-medium enterprises about how to craft more compelling job ads. The team has offices in municipalities including Beijing and Shanghai, but it is also pushing out into smaller cities like Jinan, Chengdu, and Xi’an.

“The provinces are developing very fast into service-oriented economies, with hospitality and retail workers, not just factory workers,” Mr. Lenga said.

Over the past half year, Zhaopin has increased the number of customers advertising on its site by 30% as more SMEs recognize the Internet as the primary platform for finding talented workers, Mr. Lenga said.

A banker close to Seek said Chinese workers and clients appeared to trust U. S-listed companies more because a listing helps to ensure that their accounts have been properly audited, and key financial and operational information is correct.

The prestige of a foreign listing can help boost business in China’s increasingly crowded Internet sector. Since its U.S. debut, shares in Autohome have more than doubled to value the business at US$4.35 billion.

Warburg Pincus LLC-owned online classifieds company 58.com Inc., WUBA +3.89%dubbed the Craigslist of China, has seen its share price triple since its partial U.S. listing in October.

“When you’re publicly listed you get a lot more press and people see you giving out a lot more information. It helps you drive sales,” Mr. Louis said.

The success of Autohome and profits from an earlier IPO of real-estate website SouFun Holdings Ltd. SFUN +6.13% on the Nasdaq NDAQ +3.83% in 2011 have prompted Telstra set up a permanent acquisitions team in Hong Kong and China, Mr. Louis said.

The company is focusing on the network applications and services space, but deals could be hard to come by, he said.

“In 2006, when we got in with SouFun, we got in early, and it was easy to get a large stake in an online business,” Mr. Louis said. “Now it’s a lot more difficult.”