Vipshop Holdings Ltd., a Guangzhou-based online retailer, raised 39 percent less than targeted in the first initial public offering in the U.S. by a Chinese company since August.
Vipshop, which runs an online discount store in China for branded goods through vipshop.com, raised $71.5 million by selling 11 million American depositary receipts for $6.50 each, according to a PR Newswire statement from the company today. The retailer was seeking as much as $117.3 million by offering 11.2 million ADRs for $8.50 to $10.50.
A total of 13 Chinese companies completed IPOs in the U.S. last year, down from 38 in 2010 which was the most since 2000 at least, data compiled by Bloomberg show, as short sellers accused Chinese companies listed on North American exchanges, such as Sino-Forest Corp. and Focus Media Holding Ltd., of misstating business and assets. Just three of the companies that raised funds through IPOs in 2011 were trading above their offering price as trading closed in New York, the data showed.
“There is still a huge amount of skepticism for Chinese companies given some of the issues with financial statements, misrepresentations, and a couple of examples of outright fraud,” Bruno Del Ama, chief executive officer of Global X Funds, a New York-based exchange-traded fund company which manages $1.3 billion including Chinese equities, said by phone yesterday before the Vipshop IPO was priced. “The U.S. market has become a lot smarter and a lot more discerning.”
Vipshop’s ADRs, each representing two ordinary shares, started trading today on the New York Stock Exchange under the symbol VIPS. The shares tumbled 15 percent to close at $5.50.
Twice as Expensive
“The market environment isn’t very good, and the IPO price was below what we thought would be a fair price for our company stock,” Eric Shen, Vipshop’s CEO, said by phone from New York. A major concern from investors was that the stock price may decline should they buy shares at IPO, Shen said, adding the price would “correctly” reflect the company’s value in the long run.
The midpoint of Vipshop’s offering range would have valued the company’s stock at $463 million, or about two times net revenue of $227 million in the 12 months through Dec. 31, a statement from the company yesterday shows.
By that measure, Vipshop would have been twice as expensive as Beijing-based competitor E-Commerce China Dangdang Inc. The online bookseller, which went public in the U.S. in 2010, is valued at about $603 million, or 1.1 times sales of $566 million last year, data compiled by Bloomberg show.
Lost Market Value
Allegations regarding Chinese U.S.-listed companies by research firms such as Muddy Waters LLC helped erase about $5 billion of market value and spurred losses for John Paulson, the billionaire who made his wealth from betting against subprime mortgages, and former American International Group Inc. Chief Executive Officer Maurice “Hank” Greenberg.
The Bloomberg China-US Equity Index of the most-traded Chinese stocks listed in the U.S. slid 17 percent last year, after two years of gains.
Tudou Holdings Ltd., China’s second-largest video sharing website, raised $174 million in its IPO on Aug. 16 at $29 per ADR. The price has gained 15 percent since to $33.30. Qihoo 360 Technology Co. a Beijing-based computer software developer, has jumped 72 percent to $24.87 from its IPO price of $14.50 in March 2011.
Renren Inc., a Beijing-based social-network operator, has lost 62 percent since its May IPO to $5.30 per ADR.
While the U.S. market will gradually open up again to Chinese companies, it will take time to get back to previous levels, Global X Funds’ Del Ama said. “Only high-quality companies are going to be able to come to the market in the next couple of quarters.”
Venture-capital investors DCM, which held a 19.2 percent stake in Vipshop, and Sequoia Capital China, which owned 19.3 percent, each added $10 million of the shares at Vipshop’s IPO, Chief Financial Officer Donghao Yang said in the interview.
Vipshop’s business model is different from other major e-commerce companies such as Dangdang as it focuses on flash sales, in which branded products are offered at discounts on the website in a short period of time, said Hurst Lin, DCM’s general partner and also a director at Vipshop.
“We can exit sooner or later by selling the stocks, and the time horizon for our holdings can go up to 10 years as Vipshop is not a traditional company,” Lin said today in the phone interview, in which Vipshop CEO Shen and CFO Yang also took part. “The U.S. market has just come back from a loss last year. When U.S. companies become too expensive to buy, investors will turn to other companies or markets with faster growth.”
Vipshop, founded in 2008, will use the proceeds of the share issue to fund capital expenditure, enhance its information technology systems and for general purposes, according to a filing yesterday. As of Dec. 31, 2011, the company had more than 1.7 million cumulative customers and sold over 1,900 brands, it said in the statement.
Goldman Sachs Group Inc. and Deutsche Bank AG managed the share sale, the statement showed.