China Auto Scraps IPO After Struggling to Lure Investors
China Auto Rental Holdings Inc. (CARH) postponed what would have been the second U.S. initial public offering by a Chinese company this year after struggling to attract investors.
The IPO was delayed because of “the current capital market conditions” according to an e-mailed statement from Christensen Investor Relations Inc., China Auto’s public relations firm. China Auto had considered reducing the offering price after only about half the order book for the IPO was covered by early this week, according to people with knowledge of the matter.
China Auto, which calls itself the country’s biggest car- rental provider, pulled the offering as U.S. investors’ appetite for mainland Chinese companies evaporated since 2010 amid accounting scandals and share declines. Guangzhou, China-based online retailer Vipshop Holdings Ltd. (VIPS) slashed its IPO by 39 percent last month and slid by as much as a third once it started trading.
“People are concerned about corporate governance issues and bad press surrounding Chinese companies,” said Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management, which oversees $295 billion globally. “China is still compelling in the long term, but how to get access to its growth is challenging.”
China Auto was seeking to raise as much as $137.5 million by offering 11 million American depositary receipts for $10.50 to $12.50 each, according to regulatory filings.
The midpoint of the offering range would have valued China Auto at $847 million, or about 7 times last year’s sales. Lentuo International Inc., the Chinese car retailer that completed a U.S. IPO in December 2010, trades at 0.6 times revenue after losing half its value since the sale, data compiled by Bloomberg show.
China Auto, whose customers include General Motors Co. and China Telecom Corp., initially filed for a $300 million IPO on Jan. 18. The company was founded in 2007 and has reported net losses every year since at least 2009, its filings show.
The loss widened to 151 million yuan ($24 million) last year as revenue jumped fivefold to $123 million, filings show. While mainland China’s securities regulator requires three continuous years of profitability for new listings on its main board, the U.S. has no such rule.
China Auto planned to use proceeds from the offering for fleet expansion and other working capital needs. Founder and Chief Executive Officer Charles Zhengyao Lu was set to own 25 percent after the IPO, and Legend Holdings Ltd., parent of Lenovo Group Ltd., would retain 55 percent, filings show.
Morgan Stanley, JPMorgan Chase & Co. and Bank of America Corp. were managing the deal.
The number of new listings by mainland China-based companies on the New York Stock Exchange and Nasdaq Stock Market peaked in 2010, according to data compiled by Bloomberg.
The 13 Chinese companies that debuted in the U.S. last year include traditional medicine maker Tibet Pharmaceuticals Inc. (TBET), which has declined 77 percent, and dating website Jiayuan.com International Ltd., which has slid by more than half.
Vipshop, which fell 33 percent in its first five days of trading, has recovered to close yesterday at $6.02, down from its $6.50 offer price. Goldman Sachs Group Inc. and Deutsche Bank AG were lead managers on the IPO.
Chinese companies attempting IPOs in foreign markets are encountering heightened scrutiny from investors after others that had gone public through reverse mergers were later revealed to be misreporting financial information.
One such company, Sino-Forest Corp., lost C$3.3 billion ($3.3 billion) of its market value after Carson Block, founder of research firm Muddy Waters LLC, accused the company of overstating its timber holdings last June. In a reverse merger, a closely held firm buys a publicly traded shell company and retains its listing.