Costly Nasdaq faces increasing competition for mainland IPOs
The US Nasdaq Stock Market faces a tough battle persuading mainland companies to list their shares on its boards because of its higher listing costs, growing valuations in Hong Kong and increasing competition.
'What we have to do is two tier,' said Nasdaq chief executive Robert Greifeld. 'We have to convince prospective listing companies about why they should list in the US, and why they should choose the Nasdaq over the NYSE,' he said, referring to the New York Stock Exchange.
The latest missed catch for Nasdaq was the e-commerce unit of Alibaba, the mainland's largest e-commerce company, which is marketing a US$1.3 billion initial public offering that it chose to list in Hong Kong.
Hong Kong won the vote not only because it is Alibaba's official headquarters, but also to avoid the expense and bureaucracy related to the Sarbanes-Oxley Act in the United States, which tightened accounting practices for publicly listed companies when it was passed five years ago, sources said.
Many companies complain that compliance with the law is prohibitively expensive and critics say it has convinced many foreign firms to seek IPOs in markets such as London or Hong Kong where regulators have a lighter touch.
US securities regulator last year started a series of changes to the more onerous parts of the law.
Technology companies have traditionally favoured a US listing because of the higher valuations they can achieve there. Most of the leading internet companies in the mainland, such as portals Sina and Sohu, and top search engine Baidu, were listed in Nasdaq for that reason.
But the valuation gap is narrowing as more and more investors park cash in Asia, betting strong economic growth will boost corporate earnings.
Kingsoft Corp, a Beijing software and online game firm, raised US$99 million from a Hong Kong IPO earlier this month. Its shares closed 38.89 per cent above its offering price of HK$3.60 on its first day of trade.
The software firm decided against following the path of rival online game companies such as NetEase, Shanda, and The9, not only because of the high costs but also because it believed a New York listing no longer garnered a higher valuation, said a person familiar with the company.
NetDragon, an online games designer, is marketing a US$162 million Hong Kong IPO.
NYSE has been trying to attract the smaller companies that it may have previously ignored.
The world's biggest bourse has attracted huge share sales by state-owned mainland behemoths, such as oil majors Sinopec and PetroChina, seeking dual listings in Hong Kong and further afield. But that ended after accounting irregularities exposed soon after China Life Insurance's US$3.8 billion offering in 2003 led to shareholder lawsuits.
The NYSE strategy shift kicked off when Suntech Power, a solar power equipment maker, raised US$455 million in December 2005.
Shanghai-based online game company Grand Interactive Group plans to raise as much as US$800 million on the NYSE next month
So far this year, the NYSE has outdone Nasdaq with US$2.1 billion raised compared with the US$1.16 billion on the Nasdaq. Last year volumes were about even in the US$500 million range, while in 2005 the Nasdaq beat NYSE with US$804 million raised compared with US$455 million, according to Thomson Financial.
Outdoor media firm Time Share Advertising and Communications plans to raise up to US$150 million from an IPO in the United States next year. Rival Tulip Mega Media, an electronic advertising company run by Olympic gold medallist Zhuang Yong, plans to raise up to US$200 million from an IPO in New York.
Last year, 86 mainland companies listed overseas: 45 in Hong Kong, 26 in Singapore, nine in New York and six in London. Japan is increasing efforts to win listings from mainland companies.
Listing shops
The number of mainland firms that listed on overseas markets last year: 86
