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Market Watch
Cover Stories Series 2012> Sustaining Economic Growth> Market Watch
UPDATED: May 7, 2012 NO. 19 MAY 10, 2012


U.S. IPO Suspended

China Auto Rental Holdings Inc. (CAR), China's leading auto rental service provider which aimed to become the second U.S.-listed Chinese company this year, suddenly suspended its U.S. initial public offering (IPO) on April 25. It planned to be listed in the NASDAQ on April 26.

CAR ran into difficulties making its foray into the U.S. capital market. Since it disclosed information for the IPO on January 19, it has increased the number of underwriters, changed the listing spot from the New York Stock Exchange to the NASDAQ and lowered its financing amount.

U.S.-listed China stocks were hit hard last year after a string of accounting scandals rocked investor confidence. Dozens of Chinese companies listed in the United States were either delisted or forced to sort out accounting concerns. CAR was expected to add confidence to Chinese companies that aim at U.S. listing.

CAR was once confident in the listing—so why the sudden backdown?

Some blame the sluggish international economic environment, which gave investors less enthusiasm. This reason doesn't make sense. Compared with 2010, when many Chinese companies flocked to the U.S. capital market, today's U.S. economy is much better. It is enjoying a faster economic recovery, and it has enhanced growth expectations.

Some think the high IPO price that CAR set has driven away investors. This reason is not sufficient enough either. After several rounds of adjustment, the indicative price of CAR ranges from $10.5-$12.5, which is not high compared with IPO prices during Chinese companies' U.S. listing rush in 2010.

The fundamental reason for CAR's IPO suspension is that investors don't have enough faith for the credit and reputation of U.S.-listed Chinese companies. U.S. investors' appetite for Chinese mainland companies has largely vanished since 2010 after some Chinese companies were delisted because of accounting scandals, violation of rules and share declines.

CAR is not the only Chinese company that suspended its IPO the night before the deal. Last year, Xunlei Thunder did the same.

The Chinese online retailer Vipshop Holdings Ltd., the first Chinese company listed in the United States this year, has seen its stock price plummet by about 7 percent, compared with its IPO price.

The overseas capital market demonstrated its distrust for Chinese companies not only in the IPO but also in intensified regulation and supervision for those listed companies.

This should give Chinese companies that aim at U.S. listing two tips. First, misconduct, such as accounting fraud and excessive advertising, doesn't have any foothold in overseas capital markets.

Second, good financial conditions and real company performance are the only things that matter in overseas markets. It may seem easier to be listed in the United States, but companies can be delisted overnight.

As a matter of fact, in both domestic and overseas markets, Chinese companies can only gain a solid foothold when they are able to give investors real and credible performance and a financial statement that can stand the testing of the market.

This is an edited excerpt of an article by Yu Fenghui, a senior financial commentator, published in the Shanghai Securities News

Email us at: yushujun@bjreview.com

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