2019 Recap: a Shaky Year for Chinese IPOs
In an overview of the ending year, CapitalWatch is highlighting some significant public offerings by Chinese companies that took place amid the economic slowdown and trade uncertainties.
This year turned out less fruitful for China IPOs than 2018, with less than 30 listings in New York and the largest taking place in Hong Kong despite the ongoing protests in the city.
While China and Hong Kong have opened up ways for their tech companies to trade stocks at home, the Trump administration took actions to turn Wall Street hostile for China. Last month, a bipartisan commission advised Congress to restrict access to the U.S. capital markets, as the Washington Post reported, following President Trump's threat to delist Chinese ADSs. Meanwhile, the White House is seeking to limit investments in Chinese stocks by the U.S. government pension funds. In addition, the Nasdaq tightened restrictions and slowed the approval of small Chinese companies, as CNBC reported in September.
However, despite the market uncertainties and tightened measures, Chinese companies are still pursuing ways to enter U.S. exchanges. As the year came to an end, many rushed to ring the bell and beat the slew of holidays, as well as political and electoral qualms and unexpected turns in the trade war. Just over the last three months of 2019, at least 11 Asia-based companies celebrated their IPOs in the United States.
In an overview of the past 12 months, CapitalWatch is highlighting some significant public offerings by Chinese companies on the U.S. capital markets that took place amid the global economic slowdown and sour Sino-U.S. relations. Very few of the stocks have remained near or rose above their initial IPO price by the year-end.
DouYu International Holdings Ltd. (Nasdaq: DOYU), a game livestreaming platform, raised $775 million in a July flotation. Priced at the bottom of the expected range, the amount nevertheless beat the company's $500 million initial target.
DouYu has a backer among China's Big Four – tech giant Tencent Holdings Ltd. (HKEX: 0700), its major shareholder, which has also invested in rivaling platform Huya Inc. (NYSE: HUYA).
After a plain debut on the Nasdaq, the stock in DouYu mostly stayed below the issue price of $11.50 per American depositary share. Its ceiling was $11.88 per ADS, with the bottom of $7.01 it hit early in December after the exclusive rights to livestreaming the League of Legends World Championships in China were acquired by rival Bilibili Inc. (Nasdaq: BILI).
The financial performance of DouYu, however, has been sound lately. Its losses have narrowed while revenue rose at a fast pace – growing 81% year-over-year in the third quarter of 2019 and 133% in the second.
On Friday, the stock in the Chinese gaming and esports unicorn closed at $8.15 per ADS.
Best Stock Performance
At $561 million, Luckin Coffee Inc. (Nasdaq: LK) ranks second biggest among Chinese listings in New York in 2019. It is also seeing the biggest gains since IPO, closing at $36.44 per ADS on Friday – that's more than double its issue price of $17 per share in May.
Early on, Luckin said it aimed to outnumber Starbucks' (Nasdaq: SBUX) locations in China. And it seems to have reached its goal at 4,500 stores, as Thinknum Media reported last week. The coffee chain has expanded at breakneck speed this year, landed partnerships overseas and even delved into tea sales.
Speedy expansion, however, comes at high costs. Luckin is seeing mounting losses on soaring revenue.
Wanda Sports Group Co. Ltd. (Nasdaq: WSG) has experienced a turbulent half-year since its IPO in July.
The sports giant, owned by Chinese conglomerate Dalian Wanda Group, raised $190 million – just 38% of the amount it initially sought. Offered at $8 a share, Wanda Sports ended in the red on debut and its troubles were only starting.
In September, after WSG released its second-quarter financials, a number of U.S. litigators' rights firms rushed in to investigate on what they claimed were false and/or misleading statements, as well as failure to disclose certain information in WSG's filings. Specifically, Rosen Law Firm claimed that two of WSG's segments – Digital, Production, Sports Solutions and Spectator Sports – lacked major sporting events in the second quarter of 2019 and suffered a decrease in revenue.
"When the true details entered the market, the lawsuit claims that investors suffered damages," Rosen Law Firm wrote in a recent statement, in which it called for shareholders to join the action.
During the same month, Wanda Sports China, which manages WSG's events and tournaments in China, announced the resignation of its chief executive, Dongwei Yang, and the appointment of Yimin Gao as his replacement. Gao comes from Wanda's early education business.
WSG shares barely came above the $5-mark. Since early September, its stock has been on a slide, with a low of $2.53 per share. On Friday, shares in the giant closed at $2.67 apiece.
Ruhnn Holding Ltd. (Nasdaq: RUHN), a KOL company, raised $125 million in April and took a 37% dive on Day One. Initially offered at $12.50 per share, the stock in RUHN has seen significant volatility, sliding to below $4 during the summer and improving, with fluctuations, during the recent months.
Like Wanda, Ruhnn is facing class action lawsuits after a number of firms alleged that the company failed to properly inform the public in IPO filings, thus damaging its shareholders. Bernstein Liebhard LLP said in a recent statement that Ruhnn failed to disclose that the number of its stores declined 40% at the time of IPO and the number of its full-service key opinion leaders decreased 44%, which led to a significant stock drop when the information was revealed post-IPO.
In October, Ruhnn appointed Jacky Jinbo Wang as its new chief financial officer.
RUHN shares hit a bottom of $3.06 and peaked at $12.14 per share. Its ADSs ended the week at $6.96 apiece.
Rush of Year-end IPOs
- Fangdd Network Group Ltd. (Nasdaq: DUO) lifted off in early November, raising $78 million for shares priced at $13 apiece. One of the largest real estate marketplaces in China, Fangdd posted better-than-expected financials this month, boosting its stock towards the year-end. DUO shares were at $15.42 on Friday.
- Q&K International Group Ltd. (Nasdaq: QK) followed soon after with a $45.9 million float. The Shanghai-based long-term apartment rental platform sold 2.7 million shares at $17 each. Its stock is now at $10.98 per share.
- Ecmoho Ltd. (Nasdaq: MOHO) also slid since its IPO price of $10, closing at $6.09 per share on Friday. A provider of health and wellness products, it raised $44 million in November.
- 36Kr Holdings Inc. (Nasdaq: KRKR), a tech and business content platform, sold 1.4 million ADSs at $14.50 apiece, raising $20.3 million. KRKR shares have been on a slide, weighed further by losses in the third quarter. They were at $7.62 apiece by week's end.
- Canaan Inc. (Nasdaq: CAN) became the first China-based provider of bitcoin mining equipment and supercomputing solutions to land a listing in New York. The company sold 10 million ADSs worth $90 million. CAN shares are currently at $5.63 apiece, down from the issue price of $9.
- EHang Holdings Ltd. (Nasdaq: EH), a developer of autonomous aircrafts, raised $40 million in early December. Priced at $12.50 per share, EH is now traded near $10.63.
- Ping An Insurance's OneConnect Financial Technology Co. Ltd. (NYSE: OCFT) was the last of Chinese companies to complete an IPO this year in New York. A fintech solutions provider, OneConnect raised $312 million for its 31.2 million ADSs. The company is also backed by Japan's SoftBank and SBI Group. OCFT closed at $10.06 per share on Friday.
In a multitude of current IPO runners-up are AnPac Bio-Medical Science, Phoenix Tree Holdings, Molecular Data, Ucommune Group Holdings, I-Mab Biopharma and CDP Holdings. Looking ahead to 2020, we will wait and see if the losing streak for new Chinese stocks makes a turnaround.