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IPOs: Greentree Sags in Debut, as iQiyi and Bilibili Line Up

Bottom line: Bilibili and iQiyi are likely to price in the middle of their ranges and debut flat to up slightly when their IPO shares start trading this week in the US.

This week is shaping up as one of the busiest I can recall for New York IPOs by Chinese firms, with at least four major listings set to take place. The first of those sputtered out of the gate on Tuesday, with hotel operator Greentree (NYSE: GHG) dropping 7 percent in its trading debut after pricing weakly and slashing the size of its offering. That less-than-stellar showing comes just days after another non-tech offering fizzled with the new listing of education specialist Sunlands (NYSE: STG) late last week.

Those weak signals could bode poorly for the three more IPOs set to take place later this week, including a launch for online video sites Bilibili and iQiyi on Wednesday and Thursday, the latter of which could raise more than $2 billion. In between that pair will be another education firm, OneSmart, which is set to debut on Wednesday.

All of this comes against the backdrop of parallel developments in China itself, which is suffering a loss of face as many of its best-known and brightest companies go to New York and Hong Kong to list. After years of impotence, China is finally trying to bring some of those companies home to list instead. It's doing that by giving preferential treatment to such firms by letting them skip the usual long waiting line, and also by trying to craft a China Depositary Receipt (CDR) program that would mirror the popular American Depositary Receipts (ADR) program.

On that front, Chinese media are reporting that drug maker WuXi AppTec, which was formerly listed in New York under the name WuXi Pharmatech but later privatized, has been approved to re-list in China (English article). What's unusual about that deal is how quickly it was approved, in just 50 days from the original application, which is lightning speed for China. A unit of Taiwan's Foxconn got similar speedy approval for its China offering earlier this month (English article), showing just how serious Beijing is about letting such hot companies jump the queue for domestic listings.

I wrote about the separate CDR campaign earlier this month (previous post), so for now we'll focus on this flurry of new offshore IPOs that shows New York still remains an attractive place for such listings at the moment. The latest offering on that front was hardly a show-stopper, with Greentree's shares slumping 7 percent in their first trading day on Tuesday to end at $13.

Weak All Around

Greentree's IPO price of $14 was already quite a bit below the previously announced range of $16-$18. (English article) As if that wasn't bad enough, the company had to earlier slash the number of shares on offer to 10.2 million, nearly half of the original 19.4 million it had planned. At the end of the day it raised $143 million, far below the goal for up to $600 million it had originally targeted.

That particularly weak performance came less than a week after Sunlands also suffered a similar fate on its debut. The loss-making education company dropped 3.5 percent in its trading debut, and is now trading about 7 percent below its IPO price.

So what's going on here, and what does this mean for the upcoming Bilibili and iQiyi listings, the latter of which is likely to be the biggest offshore IPO by a Chinese tech firm so far this year? Some of the negative sentiment is inevitably the result of ongoing trade frictions between the US and China. That reached a crescendo last week when the Donald Trump administration announced plans to levy tariffs on $50 billion of Chinese goods as punishment for unfair trade practices.

But it's probably a bit of a stretch to blame the trade tensions for these two latest weak debuts, since neither is really affected by the U.S.-China tensions. Instead, it's probably fair to say investors are taking a breather after giving stronger receptions to new Chinese listings earlier in the year. What's more, Sunlands is losing money, and Greentree is hardly at the top of its class on China's hotel scene.

That brings us to the remaining three listings and what might be in store for them. Both iQiyi and Bilibili previously sharply boosted the size of their fund-raising targets, indicating strong demand. But one of my sources tells me word is that demand may have softened a bit since then. These last two weak debuts could be somewhat one-offs due to their ho-hum backgrounds, whereas iQiyi and Bilibili are both more best-of-class plays. Accordingly, I would expect both to price a little better, perhaps in the middle of their range, and to notch flat to slightly-up debuts when trading begins.

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