Second IPO Below Target as Economy Slows: China Overnight

Acquity Group Ltd. became the second Chinese company in 2012 to raise less than planned in a U.S. share sale as a slowing economy and accounting concerns sent New York-traded stocks lower in the past year.

Acquity, a Hong Kong-based online advertising company, slipped 4.2 percent to $5.75 on its first day of trading in New York, after raising 40 percent less that targeted in its initial public offering. The Bloomberg China-US Equity Index of the most-traded Chinese stocks listed in the U.S., rose 0.9 percent last week, paring its 12 percent tumble in the past 12 months.

“The IPO market is quite choppy particularly because the IPO ahead of us was priced below the range and dropped at the get-go, which cast some shadow on us,” George Lu, the executive chairman and group chief executive of Acquity, said in a phone interview. Concerns over “governance and accounting” of Chinese companies also affected the stock valuation, he said.

Vipshop Holdings Ltd., a Guangzhou-based online retailer, has slumped 18 percent since raising 39 percent less than it intended last month in the first Chinese IPO in the U.S. since August. China’s economy expanded at the slowest pace in two years last quarter as the European debt crisis and sluggish U.S. recovery cut global demand for exported goods. Short sellers such as Muddy Waters LLC have accused companies including Sino-Forest Corp. of misstating assets or earnings in reports to investors.

Below Target

Acquity sold 5.56 million American depositary receipts for $6 each for a total of $33.3 million, according to data compiled by Bloomberg. The company initially sought as much as $55.6 million by offering the ADRs for $8 to $10, according to an April 23 filing.

In March, Vipshop raised $71.5 million by selling 11 million ADRs for $6.50 each, below the target range of $8.50 and $10.50. China Auto Rental Holdings Inc., a Beijing-based car-rental provider, postponed its IPO on April 24, citing adverse “market conditions.”

The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 0.3 percent last week to $37.87, the first decline this month. The Standard & Poor’s 500 Index rose 1.8 percent last week.

China’s Shanghai Composite Index lost 0.4 percent last week after China Cosco Holdings Co., the nation’s biggest publicly traded shipping company, reported worse-than-expected losses in the first quarter and China Petroleum & Chemical Corp., Asia’s biggest refiner, posted a slump in net income.

‘Goldilocks Predicament’

“It’s tough to get conviction about Chinese equities right now,” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds, said by phone in New York. “China is in a Goldilocks predicament in which it’s not strong enough for stable growth and it’s not weak enough for stimulus.”

China has cut reserve requirements for banks twice since November in a bid to stoke lending. Since July, the nation has kept benchmark rates on hold at the highest level since 2008.

Acquity had planned to use about $20 million of the proceeds from its IPO to expand in North America and Europe, and about $10 million will be invested in the Chinese market, according to its April 23 filing. The company’s current customers are all based in the U.S. and include General Motors Co. and Motorola Mobility Holdings Inc., the filing shows.

“We are in the business of helping American companies get into China as well as Chinese brands expand into the global market,” said Acquity’s Lu. “There is some negative sentiment in the market currently toward China-related stocks.”

Focus Media Holding Ltd., a Chinese digital advertising company, gained 6.8 percent to $25.33 on April 27, the biggest one-day advance since March 2.

‘Impairment Losses’

The Shanghai-based company, which Muddy Waters has accused of overstating its advertising networks, filed its 2011 annual report on a Form 20-F and revised its fourth-quarter net income to 27 cents a share from a previously reported 55 cents because of impairment losses, according to a statement distributed by PRNewswire. Focus said it recorded $38.3 million of impairment losses in the quarter because of a decline in the value of its investment in VisionChina Media Inc.

Focus amending its fourth-quarter earnings is “a reflection of the decline of the non-core assets they’ve invested in,” James Lee, an analyst at Credit Agricole Securities USA Inc., said in New York in a phone interview. “I would be much more concerned if there was any deterioration in its core business.”

Muddy Waters said Nov. 21 that Focus Media exaggerated its network, sending the stock down 39 percent. Focus Media has said the allegation was without merits.

“People are happy about the filing of the 20-F,” Lee said. “There was some concern they wouldn’t be able to file” before the deadline on April 30, he said.

Chalco Advances

Aluminum Corp. of China Ltd., China’s biggest producer of the lightweight metal, gained 3.9 percent to $12.64 in the U.S. on April 27 for a weekly advance of 1.5 percent. The ADRs traded at a 4.1 percent premium over the equivalent shares in Hong Kong, the most since Dec. 20.

Plans by Xiong Weiping, chief executive officer of the company known as Chalco, to diversify into rare earths, coal and iron ore overshadowed the company’s 1.09 billion-yuan loss ($173 million) in the first quarter, compared with a profit of 331.2 million yuan a year earlier.

Chalco has been the most acquisitive of any aluminum company in the past year with four deals worth $1.26 billion, according to data compiled by Bloomberg.

AsiaInfo-Linkage Inc., a telecommunications software developer, rose 2.2 percent to $11.89 on April 27 in New York, trimming its weekly drop to 0.7 percent.

The company reported adjusted earnings of 27 cents per share after U.S. markets closed on April 26, compared with an estimate of 26 cents by analysts surveyed by Bloomberg. AsiaInfo was raised to buy from neutral by Kun Tao, an analyst at Roth Capital Partners.

The Shanghai Composite is closed April 30 and May 1 for holidays and the Hong Kong exchange shuts May 1.

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