Struggling Chinese tech debuts don't bode well for unicorn IPOs
As a new batch of China unicorns line up to list, the performance of tech start-ups that went public in past year doesn’t augur well, with two-thirds below their offer price
The struggles of Chinese tech startups that went public in the past year is a bad omen for the slew of unicorns looking at initial public offerings.
Smartphone maker Xiaomi Corp and ride-hailing giant Didi Chuxing are among at least 23 Chinese tech startups eyeing IPOs in Asia and the US, according to data compiled by Bloomberg. But the performance of those that listed in the past year doesn’t augur well for them.
Two-thirds of the 21 tech IPOs in the past year are below their issue price, with shares down an average of about 20 per cent through Friday. Leading the wipe out are online financing platforms Qudian Inc and PPDai Group Inc, which plummeted 55 per cent and 48 per cent respectively, while search engine Sogou Inc has tanked 27 per cent.
“These Chinese companies are getting to a point where they need to get funding from the public market and many will try to stretch valuations as high as possible.”
The extraordinary surge in private valuations that has seen China sprout 164 companies worth at least US$1 billion now presents a challenge in public markets. The liquidity that’s expected to be drawn for the IPOs is so substantial that investors are concerned about a cash crunch in the city of Hong Kong. Compounding the problem is a more sober assessment of growth, with titans Tencent Holdings Ltd. and Alibaba Group Holding Ltd well off earlier record highs.
“These Chinese companies are getting to a point where they need to get funding from the public market and many will try to stretch valuations as high as possible,” said Julia Pan, a Shanghai-based analyst at UOB Kay Hian. “As you saw with the price tank for the companies that listed last year, if their business can’t support it, they will fall back down.”
Successful IPOs tend to be backed by China’s big firms
The IPOs that have held their own over the past year, have tended to be backed by China’s largest internet corporations, including Tencent Holdings Ltd’s China Literature Ltd and Baidu Inc’s iQiyi Inc. But they are in the minority.
The clouds hanging over recent listings range from concerns about their ability to cope with emerging regulation, the intense competition of China’s tech scene to questioning their legitimacy.