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China Auto Rental Said to Struggle to Attract Investors

April 24 (Bloomberg) -- China Auto Rental Holdings Inc., striving to become the second Chinese company to go public in the U.S. this year, may raise less than planned after struggling to attract investors, said two people with knowledge of the situation.

The company may reduce the price sought as only about half the order book for the initial public offering was covered early yesterday, the people said then, declining to be identified as the deliberations were in progress. China Auto is offering 11 million American depositary receipts for $10.50 to $12.50 each, regulatory filings show. The deal is scheduled to price later today, according to data compiled by Bloomberg.

China Auto is the country’s biggest car-rental company, according to its filings, with a fleet of almost 26,000 vehicles and customers including General Motors Co. and China Telecom Corp. The company is pushing ahead even after Vipshop Holdings Ltd. slashed its IPO by 39 percent last month and slid by as much as a third once it started trading.

“The bottom line is, there’s still a lot of negative sentiment,” said Kevin Pollack, a fund manager at Paragon Capital LP in New York. “What’s the incentive to jump in at the IPO price when the track record hasn’t been good?”

At the midpoint of the offering range, China Auto would be valued at $847 million, or about 7 times last year’s sales. That’s about 33 times the ratio for Lentuo International Inc., the Chinese car retailer that conducted a U.S. IPO in December 2010 and has since lost more than half its value, Bloomberg data show.

Listing Requirements

Unprofitable China Auto initially filed for a $300 million IPO on Jan. 18. The company’s net loss widened to 151 million yuan ($24 million) last year while 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.

All of the proceeds from the offering will go to the company for fleet expansion and other working capital. Founder and Chief Executive Officer Charles Zhengyao Lu will own 25 percent ownership after the IPO, and Legend Holdings Ltd., parent of Lenovo Group Ltd., will retain 55 percent, filings show.

A call to China Auto outside regular business hours wasn’t answered. Morgan Stanley, JPMorgan Chase & Co. and Bank of America Corp. are leading the deal, and the shares will be listed on the Nasdaq Stock Market under the symbol CARH.

Steep Declines

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., which has declined 77 percent, and dating website International Ltd., which has slid by more than half.

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.

Even legitimate Chinese companies conducting IPOs in the U.S. haven’t been immune to fear among investors that their prices are inflated, said Pollack, who invests in U.S.-listed China shares.

“The current sentiment today and the track record are such that it’s better to sit out and wait to see where the price settles,” Pollack said. “The hype is gone.”

To contact the reporters on this story: Lee Spears in New York at; Zijing Wu in London at

To contact the editor responsible for this story: Jennifer Sondag at

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