A non-tech Chinese IPO? Who? And the underwriter?

by: Ezra Marbach

China Hospitals filed a $120 million IPO on Monday. The lead underwriter is Adamson Brothers.
The company operates two hospitals in China
through Beijing-based affiliates. For the six months ended June 30, 2004, the company earned  $126,000 on revenue of $5.03 million. You wont believe this:

What does the company do?

We are a Cayman Islands company that operates two hospitals and plans to establish a multi-province hospital chain specializing in general and acute care hospitals in urban areas in the People's Republic of China. We plan to use the funds from this Offering to acquire 29 additional hospitals.

Lets now skip right to the risk factors stated in the F-1:

We have a limited operating history making it difficult to evaluate our business.

We were incorporated in the Cayman Islands on July 20, 2004 and have an operating history limited only to the two hospitals which we have acquired.

You should evaluate the likelihood of financial and operational success in light of the
uncertainties and complexities present in a development company, many
of which are beyond our control, including:

  • our potential inability to acquire hospitals in China;
  • the significant investment to achieve our business plan objectives;
  • possible China economic downturns;
  • China regulatory issues;
  • the risks involved in entering the new market of private ownership of hospitals in China;
  • costs and feasibility of acquiring hospitals in China;
  • and
    general and administrative costs relating to our operations.

If we are not successful in completing this offering or obtaining other
sources of funding, we may not be able to fund our operations or
support our capital needs and business strategy.
Accordingly, our ability to continue as a going concern is in question.

Quick thought: I think you get the point. While the company is already profitable and had what appears to be a successful 2004, it is essentially in the start-up stage. The company's risk factors are legitimate concerns, and could easily derail the company's plans.

The bigger issue is why go public with Adamson Brothers when US bulge bracket investment banks are salivating over potential Chinese deals. Dont you think if Goldman, Morgan, Merrill etc. thought there was any potential whatsoever in this deal, one of them would be lead underwriting? I think so.