Starving Bankers Charge Up China’s LightInTheBox IPO
Today I want to give myself the poor timing award for my recent remarks about the upcoming New York IPO for Chinese e-commerce firm LightInTheBox. A day after commenting that the company’s IPO had mysteriously disappeared 5 weeks after it was first announced, media are now reporting that the offering is indeed moving ahead with a new public filing. (Chinese article) What’s more, my speculation that the silence could be due to lack of investor interest also seems to be at least partly incorrect, since the latest reports indicate the company could still raise up to the full $86 million that it had originally indicated in its first public filing in April.
Before we go any further, let’s backtrack and recap some of the latest developments that prompted my previous comments that now seem slightly misguided. IPOs by Chinese firms have gotten a chilly reception from investors in the US and Hong Kong for more than a year now, the result of a number of factors including a series of accounting scandals by Chinese firms listed in the US. We began to see some signs of improving investor sentiment late last year, when social networking site YY (Nasdaq: YY) made a successful listing in New York and shares of recently listed discount retailer Vipshop (NYSE: VIPS) also started posting big gains.
But hopes for a return of bullish sentiment ran into trouble earlier this week, when new Hong Kong IPOs by Galaxy Securities (HKEx: 6681) and Sinopec Engineering (HKEx: 2386) met with tepid enthusiasm. Galaxy managed to post a modest gain on its trading debut, while Sinopec Engineering shares actually fell slightly on their first trading day. Shares of both firms priced near the bottom of their indicated range, reflecting the lack of strong investor interest in either offering.
Against that backdrop, I’d said the LightInTheBox offering might also be getting a chilly reception behind the scenes since 5 weeks had passed without any reports on the IPO’s progress. Now media are saying that LightInTheBox has made a new filing for its offering, announcing plans to issue up to 8.3 million American Depositary Shares (ADSs). It set a price range of $8.50 to $10.50 for each ADS, meaning it could raise up to $87 million if it prices the offering at the top end of the range. That number is relatively modest, but is also consistent with the figure the company gave in April when it made its first public filing.
In an interesting twist, media are reporting that LightInTheBox has said the IPO’s underwriters could also be some of the biggest buyers of the newly issued ADSs. The reports say the underwriters will be allowed to buy up to 1.25 million of the ADSs being offered, accounting for up to 15 percent of the total. That kind of commitment looks quite unusual to me, and is no doubt intended to guarantee sufficient demand for all the shares being sold.
That kind of commitment also probably reflects a certain desperation among investment banks, which have been suffering from lack of business during the IPO downturn. In this case, the media reports say 4 companies are underwriting the IPO, quite a large number for a deal of this size, including Credit Suisse, Stifel Financial, Pacific Crest Securities and Oppenheimer & Co.
So now that this deal is moving ahead, what does the future hold for it? Given the tepid reception for the 2 Hong Kong IPOs and the unusual commitment by the investment banks to buy LightInTheBox shares, I would say that demand for this IPO is relatively weak and it will probably end up pricing at the very low end of its range. Still, it could see a decent trading debut if it can tell investors that it recently become profitable or expects to do so soon — something that looks likely. On the whole, look for the shares to price around the $8.50, and then to perhaps post a 5-10 percent jump on their trading debut.
Bottom line: LightInTheBox’s IPO is likely to price near the low end of its indicated range, but could jump 5-10 percent in its trading debut if it gives positive profit outlook.
Doug Young, Contributor