HONG KONG: More than a dozen technology companies from China are rushing to go public abroad, in an enticing opportunity for investors but one that has generated poor returns recently.
Shares of most Asian tech companies that have listed in New York and Hong Kong since the start of 2017 have notched lackluster performances, with the bulk trading below their initial public offering prices after strong early gains.
That could pose challenges for the many private Chinese tech companies hoping to take advantage of buoyant markets to go public. Together, these companies could sell at least $50 billion in new shares if they list in the coming months. The first will likely be smartphone maker Xiaomi Corp., which recently filed paperwork for a Hong Kong listing.
Xiaomi is hoping to raise at least $10 billion in what could be the world’s largest IPO since 2014 and is targeting a $70 billion to $80 billion valuation, people familiar with the matter previously told The Wall Street Journal. That is down from a previous goal of $100 billion.
Some bankers and deal advisers say Xiaomi’s coming share sale will serve as a bellwether for other tech unicorns, or private companies with valuations above $1 billion. If Xiaomi’s IPO and trading debut don’t go well, that might lead other companies to reconsider their timing and valuation targets.
“If you had asked me six months ago, I’d say ‘no problem’ for many of these companies looking to go public,” said Timothy Atwill, head of investment strategy at Seattle-based Parametric Portfolio Associates , which manages $14 billion in assets in China and other emerging markets. “Asia tech was very much in favor…but 2018 so far has been a very uneven return story.”
Some 16 Asian tech or internet companies have raised more than $100 million in IPOs in New York or Hong Kong since the start of 2017. Shares of 12 of them—which are mostly from China—are trading below their offering prices, according to data from Dealogic and FactSet.
The six Asian tech IPOs in Hong Kong are down 8.3% on average from their IPO prices through Friday’s closing, while the 10 that listed in New York are averaging a 9.6% decline. Their performance contrasts with newly listed companies broadly, which have chalked up average gains of 32% in Hong Kong and 22% in New York over the same period, Dealogic says.
Some Chinese tech IPOs have drawn high subscription rates, but that hasn’t always translated into outperformance after listing. Ping An Healthcare & Technology Co. , a unit of Chinese financial giant Ping An Insurance (Group) Co. of China Ltd. , had a weak trading debut earlier in May after raising $1.1 billion in a highly subscribed IPO in Hong Kong.
Shares of the company, which operates an online health platform called Good Doctor, fell as much as 8.9% below their IPO price in the first few days of trading before regaining ground. They traded at 54.70 Hong Kong dollars, or U.S.$6.97, through Friday, a hair below their IPO price of 54.80 Hong Kong dollars.
In another troubling sign, the largest IPO so far this year received a weak reception from investors last week. While not a tech company, insurer AXA Equitable Holdings Inc. priced its $2.75 billion stock sale well below expectations.
Investors are likely to be more cautious in the wake of those IPOs, market participants say.
Besides Xiaomi, other highly valued private companies planning or discussing large IPOs later this year include music-streaming company Tencent Music Entertainment Group , ride-hailing giant Didi Chuxing Technology Co. and online services platform Meituan-Dianping . All three companies were valued at more than $30 billion in recent fundraising transactions or private-market trades in their shares.
Company executives and bankers are optimistic that the markets can absorb a string of large tech IPOs this year, many of which are expected to trade at higher valuations than the recently minted public companies. Some say coming deals are likely to attract institutional investors looking for exposure to China from names expected to rival large global companies.
And it isn’t uncommon for shares of tech companies to recover strongly after a weak start. Shares of Facebook Inc., which went public at a valuation of $104 billion, sank over 50% from the IPO price before a multiyear surge that has taken the company’s valuation past $500 billion.
Shares of Chinese internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. TCEHY -0.11% doubled last year. They are both valued at around $500 billion, ranking among the world’s 10 largest public companies.
Some recent IPOs were done in a period of “global euphoria,” said a senior Hong Kong investment banker. That led to aggressive, unsustainable pricing, some market participants say.
China Literature Ltd. , a unit of Tencent and China’s largest online publishing website, has lost about one-third of its value after nearly doubling in its first trading day in November. It recently traded 28% above its IPO price.
Hong Kong-listed gaming firm Razer Inc. has dropped 46% from its opening day close. Yixin Group Ltd. , a Chinese online car retailer, is down 46% from its first-day close. Both are trading below their offer prices.
Shares of Chinese online lender Qudian Inc., which counts Alibaba as a backer, have lost more than half their value since the company went public in October, despite a 47% pop on its first trading day that valued it at over $9 billion at its peak. Shortly after Qudian’s IPO, Chinese authorities announced new regulatory curbs on online lenders that have weighed on it and other financial-technology stocks.
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