US IPO Pricing Recap: Has The Largest Chinese IPO In 10 Years

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This article is now exclusive for PRO subscribers. (NASDAQ:JD) raised $1.8 billion on Thursday, making it the largest U.S. initial public offering from a Chinese company since Semiconductor Manufacturing (NYSE:SMI) in 2004. The last tech IPO this large was Twitter (NYSE:TWTR), which raised just $40 million more in November but with a much lower market cap. And while the direct-to-consumer e-commerce site could be about one-eighth the size of Alibaba when it goes public (ALIBA.RC), JD's control over inventory and fulfillment make it unique to the Chinese consumer.

The company traded up 10% on its first day after pricing above the range, but fell 4% Friday. Chinese social messaging giant Tencent (OTCPK:TCEHY) offered its most direct challenge to rival Alibaba, investing $1.2 billion in JD in a concurrent private placement, which follows Alibaba's sizable stake in the April IPO of microblogging site Weibo (NASDAQ:WB).

This week's best performer was the Permian Basin oil and gas E&P Parsley Energy (NYSE:PE), which raised $925 million after it priced above the range and traded up 20%. It is the fifth energy E&P this year; the previous four averaged a 10% discount to the midpoint but are up 29%. SunEdison Semiconductor (NASDAQ:SEMI) also managed to rise 20%, but only after pricing at the low end. SunEdison's (NYSE:SUNE) semiconductor spinoff had suffered in recent quarters due to the lower sales prices of semiconductors, but the company received support from its largest customer, Samsung (OTC:SSNLF), in a $100 million concurrent private placement.

The three smallest deals all went public on Friday and were forced to slash their offering prices significantly below the range. Heritage Insurance priced 27% below its midpoint and traded up 5%. Agile Therapeutics (NASDAQ:AGRX), which is developing the first low-dose contraceptive patch with manufacturing partner Corium International (CORI, April IPO), cut its IPO price by over half and doubled the shares it offered. Agile raised $55 million instead of $60 million, but the lower price drastically reduced its market cap. This week saw two deals postpone - 21st Century Oncology Holdings (ICC) and First Foundation (FFWM, rescheduled to price next week).

With 21 IPOs so far and two more on the calendar for next week, May will be the first month in 2014 to have fewer initial offerings than the same month in 2013. While IPO activity has been hampered by the severe valuation correction of biotech and technology companies - the year's most active IPO sectors - 23 IPOs still make it the third most active May in 10 years. Earlier in the month, only 48% of the year's IPOs were trading above their offer price, but that number has since climbed up to 55%, and it is 73% for IPOs in the past two weeks. This could signal the IPO market's recovery, along with more conservative valuations.

Last week's enterprise software IPO Zendesk (NYSE:ZEN) continued to trade up this week, an encouraging sign for the companies waiting in the pipeline. Preliminary IPOs filings started out sluggish this month, but a recent surge of biotechs could make it the most active May for initial filings in over 10 years, indicating a busy June ahead.

IPO pricings (week of May 19, 2014)
Company (Ticker) Business Deal Size ($mm) IPO Price vs. Midpoint Return as of 5/23
Parsley Energy Oil and gas E&P in the Permian Basin $925 12% 20%
SunEdison Semiconductor Silicon wafers for semiconductors; spinoff of SunEdison $94 -7% 20%
Superior Drilling Products Restores drill bits for oil and gas mining $27 -33% 12% China's largest direct online retailer $1,780 12% 6%
Heritage Insurance Holdings Florida-based residential insurance $66 -27% 5%
Agile Therapeutics Biotech: low-dose contraceptive patch $55 -54%* -8%
*Doubled shares offered on IPO

IPO market snapshot
So far this year, 115 IPOs have raised $23.5 billion and produced an average first day return of 14%. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has fallen 3% compared with +3% for the S&P 500. The IPO ETF has fallen 2% in the past 30 days compared with +1% for the S&P 500. This points to an IPO market that is recovering from its correction with IPO ETF up during the past week, while the S&P closed at a new record high today. The active IPO pipeline includes 123 companies looking to raise a total of $46.7 billion.

Disclosure: No positions