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Although it’s barely halfway over， 2014 is already a watershed year for Chinese internet companies getting listed overseas. Analysts estimate that Alibaba， China’s largest e-commerce company， will raise US$20 billion via its initial public offering （IPO） on the U.S. stock market， which is scheduled for August. That figure would make Alibaba’s debut the largest tech IPO ever， surpassing even Facebook’s US$16 billion in 2012.
Chinese I.P.O. Boom on Wall Street
Even before Alibaba completes its offering to public investors in the U.S.， China-based tech firms already have landed there in a big way this year. On May 22， 2014， another Chinese e-commerce giant， JD.com， landed on NASDAQ and raised US$1.78 billion. In the first half of 2014， the U.S. capital market saw an IPO boom of Chinese internet companies. By the end of June， 10 Chinese companies were listed in the U.S. stock market， of which eight were internet start-ups.
The latest IPO report from the multinational professional services giant Ernst & Young shows that U.S. IPOs by Chinese start-ups surged in the first half of this year， making them the secondmost popular stock investment behind U.S. companies. According to the report， Chinese companies listed in the U.S. in the first six months of this year in total raised US$3.9 billion， swelling to the highest level in 10 years in terms of both flow and aggregate valuation. European start-ups raised US$3.3 billion over the same period， spurring China past Europe as a producer of innovative companies for U.S. public markets.
The recovering U.S. economy is considered a major factor in the IPO boom of Chinese internet companies in the U.S. “In the bullish U.S. stock market， tremendous amounts of capital are eager to meet investment projects，” remarks Yu Xiaoguang， chief investment officer of Zecheng Capital. “In this case， enterprises that launched IPOs in the U.S. market are more likely to get a better offering price.”
In 1999， NASDAQ became a “paradise” for tech and internet companies. In July of that year， China’s first internet stock， China.com， landed on NASDAQ. Soon， the global internet bubble burst， and Chinese internet giants became bearish about U.S. offerings. Not until 2010 did Chinese firms gain major appeal from U.S. investors. Then， a wave of Chinese internet IPOs swept the U.S. market. Due to the fact that some Chinese companies listed in the U.S. committed financial fraud， almost all U.S.-listed Chinese firms lost credibility and suffered from short selling. In the years that followed， few Chinese enterprises were listed in the U.S. Fortunately， the situation has changed： A group of Chinese internet companies including JD.com launched a new IPO boom in the U.S. market. “If Alibaba successfully goes public， its total market value added to JD.com would total US$200 billion，” comments Yu Xiaoguang. “Undoubtedly， 2014 will be the most important year in the history of Chinese firms listed in the U.S.” He even labeled the year a milestone in history of Chinese firms going abroad.
Why I.P.O. in U.S.A.
An important factor driving Chinese internet companies to launch IPOs in the U.S. stock market is its comparatively lower threshold.
Enterprises must earn revenues no less than 500 million yuan and be profitable in the most recent fiscal year to be listed on China Growth Enterprise Market， which is considered the stock market with the lowest requirements for IPO applicants on the Chinese mainland. However， almost all internet start-ups operate at a loss in their early years. For instance， JD.com lost more than 1.7 billion yuan in 2012 and 490 million yuan in 2013. However， even companies in the red can be listed on the U.S. market， evidenced by Youku Inc.， China’s major video website.
“China’s capital market still lacks a full understanding of the internet，” opines Hu Yanping， founder of Data Center of China Internet. “Few Chinese investors are willing to invest in internet companies in the long term. It is a great loss for the domestic capital market that so many promising internet firms have been listed abroad.”
China’s stock market has remained bearish the past couple of years. To boost investor confidence in the market， China Securities Regulatory Commission （CSRC） suspended IPO applications last February and didn’t resume them until the end of June. “Internet companies find it difficult to get listed on the bearish domestic stock market where investors lack confidence，”remarks Chen Fengying， director of the Institute of World Economics Studies. “It is easier for them to get listed in the U.S.， and they will raise more funds this way.”
Blending Opportunity and Risk
Every well-performing Chinese internet company in their respective market segments earned satisfying rewards after going public in the U.S. market. For instance， shares of Tuniu.com， a Chinese online travel website， have doubled since they were listed on NASDAQ last May. In a month， the share price of JD.com roared to US$30 from US$19 on the day of its IPO. Some predict that several other Chinese internet companies such as Dianping.com， PPTV， VANCL， and Ganji.com will be listed in the U.S. before the end of this year. “Generally， most Chinese internet companies listed in the U.S. market this year are focused on certain market segments with high growth potential，” notes Shen Yang， an analyst with Orient Securities Co.， Ltd. For instance， Sina Weibo and JD.com both occupy at least half of their respective market segments and have tremendous numbers of users.
According to Jackie Kelley， head of Ernst & Young’s Global IPO practice， most Chinese start-ups that went public in the U.S. this year have been internet firms with hybrid business models attractive to U.S. tech investors. “They have multiple revenue streams from different businesses， including e-commerce， advertising and other online services，” she says.
However， their unfamiliarity with U.S. business supervision and auditing rules make U.S.-listed Chinese firms more likely to become “prey” for short-selling firms such as Muddy Waters and Citron. On July 4， 2014， under an attack from Muddy Waters， the stock price of NQ Mobile Inc.， a Chinese mobile security company listed on NASDAQ， plummeted 32 percent. According to Chen Fengying， overseas capital markets present risk as well as opportunity for Chinese start-ups. “Easier listing doesn’t mean easier operation，” she adds.“When in Rome... Chinese enterprises listed in the U.S. must learn and abide by relevant U.S. rules.”
With a securities regulations revision coming at the end of this year， China’s IPO system will shift from approval-based to registration-based， making it easier to get listed on China’s mainland stock market.“The U.S. IPO procedures are complicated for any Chinese enterprise，” says Shen Yang. “Even if it is listed in the U.S. market， any breach of supervisory rules will result in hefty fines. Those factors will also urge Chinese start-ups to launch IPOs in the domestic market. Perhaps the IPO boom of Chinese companies in the U.S. market will never happen again like it did in 2014.”
Chinese I.P.O. Boom on Wall Street
Even before Alibaba completes its offering to public investors in the U.S.， China-based tech firms already have landed there in a big way this year. On May 22， 2014， another Chinese e-commerce giant， JD.com， landed on NASDAQ and raised US$1.78 billion. In the first half of 2014， the U.S. capital market saw an IPO boom of Chinese internet companies. By the end of June， 10 Chinese companies were listed in the U.S. stock market， of which eight were internet start-ups.
The latest IPO report from the multinational professional services giant Ernst & Young shows that U.S. IPOs by Chinese start-ups surged in the first half of this year， making them the secondmost popular stock investment behind U.S. companies. According to the report， Chinese companies listed in the U.S. in the first six months of this year in total raised US$3.9 billion， swelling to the highest level in 10 years in terms of both flow and aggregate valuation. European start-ups raised US$3.3 billion over the same period， spurring China past Europe as a producer of innovative companies for U.S. public markets.
The recovering U.S. economy is considered a major factor in the IPO boom of Chinese internet companies in the U.S. “In the bullish U.S. stock market， tremendous amounts of capital are eager to meet investment projects，” remarks Yu Xiaoguang， chief investment officer of Zecheng Capital. “In this case， enterprises that launched IPOs in the U.S. market are more likely to get a better offering price.”
In 1999， NASDAQ became a “paradise” for tech and internet companies. In July of that year， China’s first internet stock， China.com， landed on NASDAQ. Soon， the global internet bubble burst， and Chinese internet giants became bearish about U.S. offerings. Not until 2010 did Chinese firms gain major appeal from U.S. investors. Then， a wave of Chinese internet IPOs swept the U.S. market. Due to the fact that some Chinese companies listed in the U.S. committed financial fraud， almost all U.S.-listed Chinese firms lost credibility and suffered from short selling. In the years that followed， few Chinese enterprises were listed in the U.S. Fortunately， the situation has changed： A group of Chinese internet companies including JD.com launched a new IPO boom in the U.S. market. “If Alibaba successfully goes public， its total market value added to JD.com would total US$200 billion，” comments Yu Xiaoguang. “Undoubtedly， 2014 will be the most important year in the history of Chinese firms listed in the U.S.” He even labeled the year a milestone in history of Chinese firms going abroad.
Why I.P.O. in U.S.A.
An important factor driving Chinese internet companies to launch IPOs in the U.S. stock market is its comparatively lower threshold.
Enterprises must earn revenues no less than 500 million yuan and be profitable in the most recent fiscal year to be listed on China Growth Enterprise Market， which is considered the stock market with the lowest requirements for IPO applicants on the Chinese mainland. However， almost all internet start-ups operate at a loss in their early years. For instance， JD.com lost more than 1.7 billion yuan in 2012 and 490 million yuan in 2013. However， even companies in the red can be listed on the U.S. market， evidenced by Youku Inc.， China’s major video website.
“China’s capital market still lacks a full understanding of the internet，” opines Hu Yanping， founder of Data Center of China Internet. “Few Chinese investors are willing to invest in internet companies in the long term. It is a great loss for the domestic capital market that so many promising internet firms have been listed abroad.”
China’s stock market has remained bearish the past couple of years. To boost investor confidence in the market， China Securities Regulatory Commission （CSRC） suspended IPO applications last February and didn’t resume them until the end of June. “Internet companies find it difficult to get listed on the bearish domestic stock market where investors lack confidence，”remarks Chen Fengying， director of the Institute of World Economics Studies. “It is easier for them to get listed in the U.S.， and they will raise more funds this way.”
Blending Opportunity and Risk
Every well-performing Chinese internet company in their respective market segments earned satisfying rewards after going public in the U.S. market. For instance， shares of Tuniu.com， a Chinese online travel website， have doubled since they were listed on NASDAQ last May. In a month， the share price of JD.com roared to US$30 from US$19 on the day of its IPO. Some predict that several other Chinese internet companies such as Dianping.com， PPTV， VANCL， and Ganji.com will be listed in the U.S. before the end of this year. “Generally， most Chinese internet companies listed in the U.S. market this year are focused on certain market segments with high growth potential，” notes Shen Yang， an analyst with Orient Securities Co.， Ltd. For instance， Sina Weibo and JD.com both occupy at least half of their respective market segments and have tremendous numbers of users.
According to Jackie Kelley， head of Ernst & Young’s Global IPO practice， most Chinese start-ups that went public in the U.S. this year have been internet firms with hybrid business models attractive to U.S. tech investors. “They have multiple revenue streams from different businesses， including e-commerce， advertising and other online services，” she says.
However， their unfamiliarity with U.S. business supervision and auditing rules make U.S.-listed Chinese firms more likely to become “prey” for short-selling firms such as Muddy Waters and Citron. On July 4， 2014， under an attack from Muddy Waters， the stock price of NQ Mobile Inc.， a Chinese mobile security company listed on NASDAQ， plummeted 32 percent. According to Chen Fengying， overseas capital markets present risk as well as opportunity for Chinese start-ups. “Easier listing doesn’t mean easier operation，” she adds.“When in Rome... Chinese enterprises listed in the U.S. must learn and abide by relevant U.S. rules.”
With a securities regulations revision coming at the end of this year， China’s IPO system will shift from approval-based to registration-based， making it easier to get listed on China’s mainland stock market.“The U.S. IPO procedures are complicated for any Chinese enterprise，” says Shen Yang. “Even if it is listed in the U.S. market， any breach of supervisory rules will result in hefty fines. Those factors will also urge Chinese start-ups to launch IPOs in the domestic market. Perhaps the IPO boom of Chinese companies in the U.S. market will never happen again like it did in 2014.”