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Ag Bank of China IPO: bull case, bear case

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Business week: Summary Box: China’s AgBank IPO nabs $19.2 billion.

Wiki; Official web site of Ag Bank China’s (ABC, 中国农业银行股份有限公司).

(source: ForeignHR)

Bear case
Ag bank of China primarily serves the less-developed regions and people in China: the rural areas, the villages, the farmers and peasants, the agriculture related business. Since the founding of People’s Republic (and Ag bank shortly after), farm produce price has been kept artificially low by the central government (in a way subsidize other industries), and since 1978 the reform of economy, the situation has improved, but the economy gap between rural and urban has increased in last 30 years.

Bull case

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Mr. Market turned face

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Some signs of the stock market is cracking:

1) The leaders such as Google (Nasdaq: GOOG), Apple (Nasdaq: AAPL), Berkshire Hathaway (NYSE: BRK.A, BRK.B) are retreating.

2) CIC is thinking about buying equities again, Renaissance Technologies is one option (last time CIC pulled trigger, it bought Blackstone pre-IPO at top).

3) Goldman Sach is selling. It sold a stake in ICBC recently.

4) Last but not least: US CEOs still pessimistic about economy.

Two leaders in this globe

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Rosetta Stone, learning foreign language

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First saw Rosetta Stone at the mall couple years ago (the kiosk). More recently saw its Ads on the TV. Today comes a monumental day for the company (bloomberg news, IPOHome, Yahoo Finance), the IPO (as old Warren says IPO stands for its probably overpriced).

Fun and emotion aside, I think this language thing may stick. Before Rosetta Stone, the other public company does language training I know of is New Oriental (NYSE: EDU). New Oriental has harnessed the Chinese market in a very unique way, and it’s now the un-disputed leader in English test training in China. The main reason? Basically without the training from New Oriental, normal Chinese students can not score high in the TOEFL and GRE (notice I said normal, certainly I understand there are some exceptional Chinese students, and I happened to meet a few back in college). At the time I took TOEFL and GRE, New Oriental school has not existed in my city, so I took training from the best alternative: Qianjing college. Anyway, they serve similar purposes.

I have not used Rosetta Stone service yet. Nor do I plan to learn another foreign language (English is hard enough for me). But I know there is huge demand in this area. Chinese (mandarin) and Spanish are two popular ones. As matter of fact, my wife has been teaching madarin to some college students and little kids, and she has been enthusiatically studying Spanish and Cantonese these days. I joked with her why not learn Cantonese while at Hongkong (she studied there for one year).

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WuXi Pharma WX continues to drop

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WuXi Pharma Tech (NYSE:WX) continued to slide, during my absence. One (main) concern is heavy insider selling (source: seekingalpha) lately, after the secondary offering was suspended on May 4.

I double checked the F1 filings for secondary offering (principal and selling shareholders), and found its CEO Dr. Ge Li was going to sell 8 million shares, and he unloaded 200,000 shares on May 30 according to AOL finance. BTW, it is a bit strange I could not find those transactions at SEC web site. Adding insult to the injury, United Overseas Bank (UOB) said it was going to sell 2.1 million shares at $18.4 each, according to Reuters. I guess they must need cash badly (hint: sub-prime trouble). Seriously, from its F1 it appears to me UOB is a venture investor in WuXi, and I am not surprised to see it wants to cash out some (note it intended to sell those shares in the now aborted Secondary). In other words, UOB still sells the shares planned in the Secondary, but the Wuxi management did not.

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Demystify the sale of CCB shares

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Coule day a ago I came across this BoA (NYSE:BAC) bought CCB (China Construction Bank, Hongkong 0939) shares at dirt cheap price story from my Chinese friend StrengthTrader (English news here). After that I read this one original written by 21cbh, titled The Mystery of 70% Off of CCB Shares, here is a faster link from baidu finance. BTW, I always bought and liked 21cbh when I was in Shanghai last year.
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Got some WX Wuxi Pharma again

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Wuxi Pharma logo

I bought some Wuxi Pharma (NYSE:WX) shares today, last year I traded it shortly after its IPO in Aug/Sept.

Recent developments
Q4 and full year 2007 results (MSN Money): total net revenues increased 93.3% to $135.2 million (compared to 2006);

Chemsitry CRO of the year by Pfizer;

Q1 2008 results to be released on May 27;

Wuxi postponed secondary offering today; here is F1 prospectus for secondary offering (I have not found its 2007 annual report).

Background (in Chinese)

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IPO and secondary offering: I

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I have written an article talking about why Chinese companies come to list in NYSE or Nasdaq a while ago. This is a topic warrants more than one article, amid the VISA filing for IPO and recent controversy of Chinese companies (Ping’an and Pu Fa) tried to do secondary in Shanghai. So let me talk about the reasons why companies go to capital market for money.

I remember Ken Fisher talked about the use of debt or stock for companies in terms of raising money, in his book “Only 3 questions that count“. To sum it up, a company will always look for a better way to finance its operation/growth, if the debt (borrow from banks) is available and cheap, they will do it. On the other hand, they will go with issusing stocks. He further explains why maturing companies (with low PE) finds borrowing is cheaper, and growth companies finds issuing stocks is cheaper.

China Ping an insurance IPO pic
(Picture above: CEO of China Ping’an insurance at IPO media event)

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Visa IPO

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Yes, the long anticipated credit card giant is filing for the IPO. Here is its S1 prospectus. I have not read the S1, but from what I read (from MSNBC), they are going to raise up to $10 billion. That’s the largest IPO in US since 2000, and it’s the category of China ICBC’s IPO couple years ago (1398.HK).

My gut feeling of its IPO is two fold:
1) It will be priced (relative terms) higher than MasterCard IPO couple years ago, the reason goes as follows: MA went up from $40 to $200 in that period. Now people who missed the boat on MasterCard IPO will try hard to get on the Visa ship, thinking they can get the return like MA did.

2) current market condition is not friendly for IPO, because the big investment banks are in financial difficulty now. So, do they expect little guys (like us) to hold the bag?

Business wise, we all know the credit card transaction is booming. From developed countries to developing countries, everyone is addicted to the plastic, as shown by the following pic (from Visa prospectus).

Visa card pic

Visa is an Olympics sposor, so pack your visa card if you visit Beijing this August 🙂

(Update Feb 28) My friend LaoZhang (author of wrote a good piece about Visa IPO (in Chinese), here is the link.

Chinese translation
如题所述,VISA这个信用卡巨无霸要开始发行新股了。这里是它的S1 招股说明书,我还没来得及读,但是据MSNBC说,VISA准备至少募股100亿美元。这将是2000年以来美国最大的IPO,和几年前中国工商银行的IPO(1398.HK)有的一拼。

听到VISA 发行股票,我的直觉是:

1)相对而言,VISA股票的定价会比几年前MasterCard IPO高,原因是:从发行到现在,MasterCard股票由40美元涨到200美元,于是错过MasterCard IPO 那趟船的人现在会挤破头努力登上VISA IPO 这艘舰,满心以为可以得到象MasterCard那般的回报。



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Perfect World IPO

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I read this from Netease: Perfect World, a Chinese online game co., will debut in Nasdaq under ticker symbol PWRD tomorrow July 27.

Here is the prospectus from SEC. The company was not profitable in 2005, and 2006, but it turned corner in Q1 2007. It seems other Chinese online game companies are also coming because the market started to warm up to SNDA, NCTY etc, and the craziness of Wii.

I’m not a gamer, and I’m packing for back to home trip. So I will leave the analysis to experts.

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Why Companies Go Public?

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This is a too big question. But I have thought this thing for quite a while, and want to share my thoughts. A few weeks ago I was watching the “Boss Town” program at China-CBN, the host posed this exact question to the founder of Qiao Xing (Nasdaq: XING), Mr. Wu Ruiling: why do you go to Nasdaq considering the overhead of compliance (Sarbane-Oxly etc.)?

Fair question. Mr. Wu shared one reason: when a company grows to a certain stage, it’s better to have more than one boss (owner): other minority owners can contribute to the development of the company.

I think besides “better corporate governance/management”, there are at least two reasons: 1) To raise the money (capital), 2) To raise the company profile. These two reasons fit well with the recent Chinese IPOs in last Fall: New Oriental (EDU), Home Inns (HMIN), and Mindray (MR). Let’s explain one by one.

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