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IPOs: No One Comes to Haier’s German Party

Bottom line:  Haier's weak IPO under a new German program to internationalize Chinese stocks owes to lack of awareness and thin trading, and reflects challenges the new market will face in its drive for recognition.

What if you threw an IPO and nobody came? That's what seems to be happening for home appliance giant Haier, which has just made the inaugural listing on a new Sino-German stock exchange aimed at internationalizing Chinese companies. The program captured headlines earlier this year when it was first announced that Haier had been selected to make the inaugural listing. But momentum has rapidly faded since then.

I'll examine some of the reasons for the lackluster debut shortly, and what it might mean for the internationalization of Chinese stocks, which appears to be the bigger goal with this program. But first let's review this latest less-than-dazzling end to a story that began with relatively strong sentiment and big hopes.

This particular program is the work of the China Europe International Exchange AG (CEIEX), which was set up about two years ago as a joint venture between the Shanghai and German stock exchanges. Haier was selected to be the first listing due to its status as one of China's most successful names outside its home market, though clearly the results show it has a long way to go to approaching bigger rival brands like GE (NYSE: GE) and Electrolux (Stockholm: ELUX).

After the initial announcement earlier this year, the plan disappeared until the last few weeks when CEIEX announced that Haier would indeed be the first to list. Some of the earlier reports said the company -- a household name in China -- was initially hoping to raise up to $1 billion. But in the end it had to settle for far less, raising just 278 million euros ($318 million) as the shares priced at the bottom of their range. (English article)

The shares opened nearly flat when trading began just an hour or two ago, at 1.06 euros per share versus a sale price of 1.05 euros, to be precise. I checked an hour or two into the trading day, and the stock was back at its IPO sale price of 1.05, indicating not too many people were too jazzed about this offering.

No Big Surprise

The result shouldn't come as a huge surprise, honestly speaking. This kind of offshore-secondary listing is almost always exactly that -- secondary. The fact of the matter is I'd be willing to bet that 90 percent of the limited number of people trading in this new stock have never seen or used a Haier appliance before in their life. Instead, they're making their decisions based on belief that this is a company with big future potential.

At the same time, others are pointing out that Haier has just launched the program, meaning very few people probably know about it at this point. So perhaps some time is just required for people to learn about the exchange, and things will pick up from there. At the end of the day, one analyst pointed out, the company's primary market will always be China, where Haier is well known and the volume of its trading is much higher.

This particular effort is part of China's broader push to internationalize its big corporate names, which could perhaps one day help to bring some stability to its famously volatile stock markets dominated by mom-and-pop traders. Most of the nation's bluest chips are already traded in Hong Kong, and many of its most famous high-tech names like Alibaba (NYSE: BABA) are traded in New York. 

That said, a logical next question might be: Does the world really need another trading ground for Chinese shares, since New York and Hong Kong are already quite accessible to nearly anyone who wants to trade in global names. My guess is that the answer is "no", and that this particular German experiment could ultimately fail to find much of an audience over the longer term. But that said, there's no reason why someone who thinks highly of Haier shouldn't buy the GDRs, since they will probably end up simply mirroring whatever happens with Haier's primary listing in Shanghai.

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