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YY Jumps After First IPO by Chinese Company in 7 Months

YY Inc. gained in New York trading after the social network operator raised $81.9 million in the first initial public offering in the U.S. by a Chinese company in seven months.

American depositary receipts of Guangzhou, China-based YY, each representing 20 ordinary shares, climbed 7.7 percent to $11.31 in New York, after the IPO priced the ADRs at $10.50, the bottom of the company’s $10.50 to $12.50 target range. ADRs surged as much as 12 percent to $11.75 earlier.

YY is the third Chinese company to complete a U.S. IPO this year, down from 13 initial offerings in 2011 and 38 in 2010, data compiled by Bloomberg show. Allegations by short sellers such as Muddy Waters LLC against Chinese U.S.-listed firms over accounting irregularities and misrepresentations of assets have deterred companies from selling shares. YY also became the first of the three Chinese companies that listed in New York this year to rise on its first trading day.

“Good quality companies will still be accepted by the U.S. capital market,” Xueling Li, YY’s chief executive officer and co-founder said in a phone interview yesterday in New York. “While we had some worries about our pricing previously, we never considered a failure of the IPO. The company’s fundamentals and scale is very attractive to investors.”

Established in 2005, YY had 400 million registered users of its core software as of Sept. 30. The system provides real-time access to user-created online groups. Compared with other social media outlets which focus on one-on-one communication, YY is a platform for voice and video interactions among groups that can be as large as 1 million people, CEO Li said.

The company currently generates positive cash flow of about $3 million every month, Chief Financial Officer Eric He said yesterday. YY has been profitable since the second quarter of 2011 based on Non-Generally Accepted Accounting Principles, or non-GAAP, He said. The company’s GAAP loss in the first nine months this year was mainly caused by share-based compensation liabilities, he said.

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