International -- Finance: Stock Markets
In Asia, They're Dreaming of NASDAQ (int'l edition)
Hot startups want a U.S. listing. Are they aiming too high?
Film producer John Chu is in demand these days. The Stormriders, an action thriller he co-produced, was Hong Kong's top box-office hit last year. Its success pushed revenues at his Centro Digital Pictures, a multimedia company specializing in computer-generated special effects, to $15 million, up 20% from 1997. And it makes Centro a hot prospect for an initial public offering to launch a NASDAQ-style stock market, the Hong Kong Growth Enterprise Market, scheduled to open by yearend.
But Centro's founder and chief executive is more interested in the real thing. In fact, Chu can hardly contain himself when he discusses the fancy price-earnings ratios that tech companies command on New York's NASDAQ, where he wants to get listed. "In Hong Kong, investors put a lot of value in companies with tangible things like property," he complains, but intellectual property like software or entertainment "they don't know how to value."CHILLS. All across Asia, technology startups are eyeing NASDAQ enviously. It's easy to see why. The U.S. market has the sort of liquidity that recession-plagued Asian markets can hardly dream about, let alone match. While research teams at most Asian brokerages are shrinking, many NASDAQ stocks develop sizable followings among analysts. So more and more Asian companies see NASDAQ as the best place to draw investors. "You don't get recognized on any other exchange," says Darryl Carlton, CEO of privately held BizTone.com. The Malaysian company specializes in delivering Java software over the Internet and hopes to make an IPO on NASDAQ by yearend.
Such dismissive words send chills through Asian governments. Many are eager to develop their information-technology industries and have decided that they need to create alternative stock exchanges or bolster existing ones to help entrepreneurs raise funds. Taiwan, for example, has unveiled new rules that make it easier for software outfits to list on the local bourse. Malaysia is starting its version of NASDAQ called MESDAQ. Meanwhile, Hong Kong's fledgling market is tailored to small and midsize companies with strong growth potential.
So far, NASDAQ's stature hasn't proved a major obstacle to those aspirations. Indeed, John Wall, president of NASDAQ-Amex International, traveled to China in January, to recruit more companies for NASDAQ. He expects three to six to list this year. "When a company has global distribution of its product, it looks for global distribution of its shares," says Wall. At the end of 1998, only 20 East Asian companies were listed on the NASDAQ, including 11 technology companies. But that may be about to change dramatically. NASDAQ expects another 10 to 12 East Asian listings this year.
If the experience of Singapore's Pacific Internet is any guide, even more companies could be tempted. The Internet service provider raised $50 million through an IPO, and the stock tripled on Feb. 5, its first day of trading. That sort of action is "going to reinforce NASDAQ as a strong destination for Asian technology stocks," says Lionel Lim, Southeast Asia chief for Sun Microsystems Inc. Now, Kiran Deshpande, chief executive of Indian software company Mahindra BT, with $40 million in annual revenues, is eyeing a NASDAQ listing. "If you have a smoothly running car on a good road, why not accelerate?" he says.
All the same, worried Asian officials are warning local companies that they could be in for a big disappointment if they set their hearts on NASDAQ quotes. Many local companies, say the officials, do not have the strength in their local markets--or the global niche--to merit a NASDAQ listing. "They need to go places where there is a lower threshold," says Othman Yeop Abdullah, executive chairman of Malaysia's Multimedia Development Corp., which is trying to create a high-tech zone for local and foreign companies.SPECTACULAR. Even companies that make the cut may become disenchanted. Of the eight Hong Kong and Taiwanese technology companies that have their primary listings on NASDAQ, seven have underperformed the market for the past three years. Only Taiwanese chip-testing company ASE Test Inc. has been stellar--rising a staggering 520% since going public in 1996.
But with a spectacular performance like that as a come-on, Asian entrepreneurs are tuning out the well-meant warnings. If they want to make it rich, they'll probably be heading across the Pacific for a long time.By Bruce Einhorn in Hong Kong, with Manjeet Kripalani in Bombay and Sheri Prasso in New York