China-Based ADR IPO Activity Heats Up

by: Renaissance Capital IPO Research

Sky-mobi Limited, a mobile application store in China with a leading 50% share and over 479 million users, announced terms for its IPO last Friday. The Zhejiang, China-based company plans to raise $65 million by selling 7,250,000 ADSs at a price range of $8 to $10 per ADS. At the mid-point of the proposed range, Sky-mobi Limited will command a fully diluted market capitalization just shy of $300 million. Founded in 2005, Sky-mobi Limited booked $81.3 million in sales and $18.5 million in operating income in its fiscal year ended March 31, 2010. The company, which is backed by well known venture capital firm Sequoia, intends to list on the NASDAQ under the symbol MOBI. Citi (NYSE:C), Piper Jaffray (NYSE:PJC), Oppenheimer & Co (NYSE:OPY), and Rodman & Renshaw (NYSEARCA:RODM) are the underwriters on the deal.

Sky-mobi is the sixth China-based company to file IPO terms just in the last week. The others include leading online video web site (NYSE:YOKU), pre-stressed steel manufacturer Ossen Innovation (NASDAQ:OSN), leading e-commerce site China Dangdang (NYSE:DANG), Chinese film distributor and producer Bona Film Group (NASDAQ:BONA), and leading Beijing-based auto retailer Lentuo International (NYSE:LAS). Another two, China-based IT outsourcer iSoftStone (NYSE:ISS) and Youku competitor Tudou Holdings (NASDAQ:TUDO), have also submitted initial IPO filings and are expected to file pricing terms imminently.

Over the last three months, Chinese-based ADRs accounted for 17 of the 47 US-listed IPOs (more than one-third of all US-based IPO volume). Collectively, the China-based IPOs have posted an average return of just under 30% compared with 19.4% among all IPOs over the same period, an indication of investors' strong desire for exposure to China's fast growing economy. However, investors are not embracing all stories with equal enthusiasm, as individual performances among the Chinese ADRs have varied considerably with six of the recent China-based IPOs up 50% or more from their respective offer price and three down more than 20%. The best performer of the batch is leading internet content and application delivery provider ChinaCache International (CCIH; up 120%); the worst performer is oil recovery services provider SinoTech Energy (CTE; down 36%).

With 28 China-based ADRs listing on US exchanges so far in 2010, and another 5-10 likely to be priced before the year is out, 2010 is on track to be a record year for China-based issuers. This year's activity stands to be up more than 3x versus the 11 China-based US IPOs in 2009 and should easily eclipse the prior record of 29 Chinese IPOs set in 2007. As a percentage of deal volume, China-based companies could account for as much as 25% of all US-listed IPOs in 2010. On a global basis, China's increasing contribution to IPO activity is even more telling. Global IPO volumes so far this year show China/Hong Kong leading the pack in terms of both number of IPOs (240) and total proceeds raised ($95.5 billion).

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