The first initial public offering by a Chinese company in the U.S. since August raised 39 percent less than planned as New York-listed stocks dropped last week amid concern the world’s second-largest economy is faltering.
Vipshop Holdings Ltd., a Chinese online discount retailer, tumbled 15 percent on its first day of trading after its share sale. While a 1.4 percent jump in oil boosted the Bloomberg China-US Equity Index by 0.7 percent on March 23, the gauge of the most-traded Chinese stocks in New York slid 0.3 percent in the week.
Allegations by short sellers including Muddy Waters LLC’s Carson Block that Chinese companies such as Sino-Forest Corp. misled investors limited IPOs of Chinese stocks in North America to 13 last year, from 38 in 2010, the most since at least 2000. Data last week signaling home prices are declining and manufacturing is shrinking bolstered concern that the world’s largest exporter is suffering from the European debt crisis and sluggish U.S. recovery. The nation cut its annual growth target to the lowest since 2004 on March 5.
“There’s still some negative sentiment toward Chinese companies,” Kevin Pollack, managing director at Paragon Capital LP in New York, said by phone on March 23. “If the growth rate of China slows down, that could make these companies even less attractive,” said Pollack, who invests in U.S.-listed Chinese stocks.
Just three of the U.S.-listed Chinese companies that raised funds through IPOs in 2011 were trading above their offering price as of March 23, data compiled by Bloomberg show.
American depositary receipts of Renren Inc., a Beijing-based social-network operator, have lost 62 percent to $5.30 since its IPO in May. Jiayuan.com International Ltd., which runs a dating website in China, has sunk 50 percent since its offer in the same month.
The slump in Chinese Internet companies since their IPOs “is still fresh on people’s minds,” said Tim Cunningham, who helps oversee $83 billion, including Chinese stocks, at Thornburg Investment Management Inc. in Santa Fe, New Mexico.
Tudou Holdings Ltd., the owner of China’s most-popular online video site, was the last Chinese company to IPO in the U.S. in August. Its stock has increased 15 percent to $33.30.
Vipshop “is a money-losing company, and they really needed to go public because they need the cash,” Cunningham said.
Guangzhou, China-based Vipshop incurred net losses in the past three years, according to a March 22 filing. The company raised $71.5 million by selling 11 million ADRs for $6.50 each, a March 23 statement showed. The retailer was seeking as much as $117.3 million by offering 11.2 million ADRs for $8.50 to $10.50.
Below ‘Fair Price’
“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 chief executive officer, said by phone in New York on March 23.
Vipshop slid 15 percent to $5.50 on March 23.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., was little changed at $36.92 on March 23, down 4.8 percent last week. The Standard & Poor’s 500 Index rose 0.3 percent, its first advance in four days, cutting the weekly loss to 0.5 percent.
An index of leading indicators in China rose at a slower pace in February compared to a month earlier, adding to evidence of moderating growth in the economy. The gauge increased 0.8 percent to 227.2, according to a preliminary reading from the Conference Board on March 23. That compares with a 1.5 percent gain in January that was revised down from 1.6 percent.
LDK Solar Co., the world’s second-biggest maker of solar wafers, dropped 11 percent last week to $4.35, extending a six-week decline. The company, based in China’s Jiangxi province, reported fourth-quarter sales of $440 million to $450 million on March 19, compared with the $440 million to $520 million range earlier forecast.
Huaneng Power International Inc., the listed unit of China’s largest electricity producer, fell 3.4 percent in U.S. trading on March 23 to $22.10, extending its loss in the week to 9.4 percent, the biggest since October 2009. Huaneng’s Hong Kong shares lost 4.9 percent to HK$4.29, the equivalent of 55 U.S. cents. Each American depositary receipt is equivalent to 40 ordinary shares.
Net profit slumped 65 percent in 2011 to 1.18 billion yuan ($187 million), the company said on March 20.
The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong lost 1 percent to 10,658.07 on March 23, extending its losing streak to an eighth day, the longest run of losses since July. The gauge is down 5 percent in the week. The Shanghai Composite Index fell 1.1 percent for a 2.3 percent weekly decline.
Home Price Drop
A preliminary 48.1 reading in a Chinese purchasing managers’ index from HSBC Holdings Plc and Markit Economics released on March 22 was the lowest since November with results below 50 signaling a contraction.
New home prices fell in 27 of 70 Chinese cities last month from a year earlier, while prices were unchanged in six others, China’s statistics bureau said on March 18. That was the worst performance since the government started releasing individual data for 70 cities at the start of 2011.
ADRs of Beijing-based Cnooc Ltd., China’s biggest offshore oil explorer, climbed 1.4 percent to $212.33 on March 23, trimming their loss last week to 2.5 percent. The ADRs, each representing 100 ordinary shares in the company, traded 0.7 percent above its Hong Kong stock, which dropped 1 percent to HK$16.38. The ADRs traded at a premium for the first time in four days.
Crude oil for May delivery slid for a second week, losing 0.2 percent in the period to $106.87 a barrel on the New York Mercantile Exchange. Prices climbed 1.4 percent on March 23.
Allegations regarding Chinese U.S.-listed companies by research firms such as Muddy Waters 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.
Sino-Forest, a plantation operator that Muddy Waters founder Carson Block said in June overstated its timber holdings, was halted from trading in Canada in August after slumping 74 percent since June 1.
The results of the Vipshop IPO are “an indication that China, for many IPO investors, is a red flag,” said Josef Schuster, the founder of IPOX Schuster LLC, an investment firm based in Chicago with about $2.5 billion under management. “Institutions may not be touching it because they got burned, and by default don’t want to play this game.”