A month ago, four Chinese IPOs came onto the market, got priced and their shares began trading on major U.S. stock exchanges. Four weeks later, three of these are still at sub-IPO prices. This doesn't bode well for the primary issuance market and is a clear indication of the lack of enthusiasm for Chinese stocks in general. Let us look more closely at how these stocks fared.
Andatee China Marine Fuel Services (AMCF)
Bookrunner: Rodman & Renshaw
IPO Price: $6.30
IPO Date: 1/26/2010
Initial Indicated Range: $6.00-$8.00
Final Indicated Range: $6.00-$8.00
Last Closing: $6.00
Absolute Returns: -4.8%
Note: This IPO wasn't priced at the bottom of the indicated range, and in fact, the number of shares were increased from 2.5m to 3.1m.
Evaluation: During the same timeframe, the DJIA creeped up all of 1.4%. So this stock has clearly underperformed.
China Electric Motor (OTCPK:CELM)
Bookrunner: Roth Capital
IPO Price: $4.50
IPO Date: 1/29/2010
Initial Indicated Range: $5.50-$6.50
Final Indicated Range: $4.50-$5.50
Last Closing: $4.87
Absolute Returns: 8.2%
Note: This offering was the last of the four major Chinese IPOs in January, and clearly it suffered in terms of pricing.
Evaluation: Its very attractive pricing means that the stock has traded up since then. However, it took a cut in the pricing range and pricing at the very bottom of that new range for this to happen.
China Hydroelectric (CHC)
Bookrunner: Broadband Capital
IPO Price: $16.00
IPO Date: 1/25/2010
Initial Indicated Range: $15.00-$17.00
Final Indicated Range: $15.00-$17.00
Last Closing: $10.45
Absolute Returns: -34.7%
Note: This offering was upsized from 4.4m to 5.0m shares.
Evaluation: In direct contrast to CELM, this was the first of the four IPOs, so it obtained better pricing. However, the upshot is that the stock price has declined precipitously since then and has lost more than one-third of its value. Yikes!
Century 21 China aka IFM Investments (CTC)
Bookrunner: Goldman Sachs & Morgan Stanley
IPO Price: $7.00
IPO Date: 1/28/2010
Initial Indicated Range: $8.75-$10.75
Final Indicated Range: $7.00-$8.00
Last Closing: $6.98
Absolute Returns: -0.3%
Note: The number of offered shares were slashed from 16.7m to 12.5m.
Evaluation: When you have Goldman Sachs and Morgan Stanley supporting in the secondary market and a brand name like Century 21, and yet the stock is still trading at below the already-reduced IPO price, it is not a good sign.
I think the bottomline is this: our Chinese small caps, on the average, have done better than these bigger companies. I expect this trend to hold true at least for Q1 and Q2, and possibly longer. In other words, I'm not going to buy any Chinese IPO stocks anytime soon, however attractive the pricing.
My Position: None.