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China stock sales in US surge to record despite delisting threat

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Funds raised by Chinese groups on US equity markets surged 440 per cent in the opening months of 2021, as the allure of sky-high Wall Street valuations outweighed the threat of forced delistings.

Chinese companies have raised a record $11bn this year on the New York Stock Exchange and Nasdaq via initial public offerings, follow-on share sales and issuance of convertible bonds, according to data from Dealogic.

Big listings included a $1.4bn IPO by e-cigarette maker RLX Technology and a $947m offering from software company Tuya, along with those by 20 other Chinese groups.

The slew of deals underscored the appeal of the vast US capital markets for Chinese companies despite tensions between Washington and Beijing.

The NYSE this year delisted three state-run Chinese telecommunications companies over their suspected ties to the country’s military. More could meet the same fate after US lawmakers in December passed a law that will forcibly delist groups that refuse to submit to US audit inspections for three years, which is prohibited by Beijing.

Column chart of funds raised year to date as of April 21 ($bn) showing Chinese issuers tap US stock markets at record pace in 2021

But bankers and IPO lawyers said that a US listing still offered Chinese groups access to a market with greater depth and more coverage by equity analysts, even as bourses in Hong Kong and mainland China have sought to close the gap.

“Implementation [of the delistings law] is still a ways out,” said Jason Elder, a partner at law firm Mayer Brown in Hong Kong. “Most companies wouldn’t want to sacrifice a few years of growth while they wait for that to shake out — especially with the constructive market environment we’ve got right now in the US.”

The listings boom also reflected China’s strong economic recovery from the Covid-19 pandemic.

Last week, China reported record year-on-year GDP growth of more than 18 per cent for the first quarter, illustrating how Beijing’s decision to impose strict lockdowns a year ago helped the country chart a path out of the pandemic far sooner than its global peers.

“The Chinese economy is forecast to grow strongly in 2021. Couple that with the emergence of a group of very strong companies, and, of course, you have investors that are keen to find ways to invest in those names,” said Craig Coben, co-head of global capital markets in Asia-Pacific for Bank of America.

While stocks listed in Shanghai and Shenzhen have plateaued after a world-beating performance in 2020, the US market has powered ahead this year, with the benchmark S&P 500 rising 10 per cent.

The US market has also benefited from beefier valuations, with the S&P 500’s price-to-earnings ratio standing at 32 times compared with 19 times for mainland China’s CSI 300. The Nasdaq Golden Dragon index of US-listed Chinese companies was trading at an eye-watering PE ratio of about 100 times.

That has helped boost IPO valuations and provide a receptive environment for share sales by Chinese companies that have already listed.

“Investors are focused on growth margins and the prospect for profitability here and now,” said Coben, “and they will address regulatory changes or geopolitical events as and when they materialise.”



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Spain’s Acciona eyes €9.8bn valuation for renewable energy IPO

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Spanish conglomerate Acciona is hoping to achieve a valuation of up to €9.8bn for its renewable energy arm, arguing it “might as well” get a flotation of the unit “over and done with” despite a sell-off in green stocks since the start of the year.

Acciona Energía had previously been expected to be among a rush of flotations in the renewables sector in Europe over the next 18 months, but the decline in climate-related stocks since January led to its Spanish rival Opdenergy cancelling its planned listing in May. 

On Thursday, Acciona priced an initial public offering of a 15-25 per cent stake in Acciona Energía at a range that implies a valuation of between €8.8bn and €9.8bn for the renewable energy entity. The group is seeking to raise funds to nearly double its renewable energy capacity in just over four years.

In an interview with the Financial Times, Acciona’s chair and chief executive José Manuel Entrecanales acknowledged the recent market volatility. Stocks such as Orsted, the world’s biggest developer of offshore wind farms, rose to an all-time high in January but investors have since pulled back amid concerns over a “green bubble”.

But Entrecanales maintained the downturn in valuations was no reason to hold off from the IPO, arguing that the listing was necessary to tap financing and improve the ESG ratings of Acciona’s activities in the renewables sector by making them a standalone business.

“There’s no absolute need to do it now, but . . . you can’t wait to find the absolute top of the market, the peak moment: this is a 20-year project,” he said. “The most important reason [for the listing] is funding and rating.”

He added that the IPO was “quite disruptive for the company”, leading Acciona’s management to “defocus very much from our main objective, which is growing the business, so we might as well get it over and done with”.

Entrecanales’s family controls around 55 per cent of the Acciona conglomerate, whose activities range from real estate to water treatment.

Entrecanales, who took over Acciona from his father in 2004, also argued that renewables valuations had improved in recent weeks. “Some of the reduction in prices that occurred . . . it’s kind of moderating lately,” he said. He dismissed other recent planned green IPOs as “an attempt to tap the market . . . [with] kind of start-up-like projects”, while not directly naming any other competitors.

By contrast, he depicted Acciona Energia as “a very seasoned . . . very conventional cash flow-generating company with a great deal of potential growth.”

The renewables group has 11GW of installed capacity but aims to reach 20GW by the end of 2025 and 30GW by 2030 through expanding in onshore wind and solar in particular. Spain remains its main market, although it also views countries such as the US, Chile and Australia as important growth areas.

Entrecanales maintained that, despite the recent downward shift in the sector’s valuation, longer-term factors that led to its surge last year still applied. These included European governments’ plans to spend much more on the energy transition, President Joe Biden’s election in the US and growing public concern about climate change.

Spanish oil major Repsol has also been looking at a possible listing of its low-carbon business while Italian rival Eni said in April that it plans to list or sell a stake in its renewable power business in 2022.

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Wise to go public in direct London listing

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Wise, the fintech company previously known as TransferWise, has announced its intention to go public in London through a landmark direct listing.

Kristo Kaarmann, co-founder and chief executive, said a direct listing “allows us a cheaper and more transparent way to broaden Wise’s ownership” than a traditional stock market launch.

It does not involve raising any new capital or bringing in new investors, but means shares held by Wise’s existing shareholders will become tradable on the London Stock Exchange.

The company’s decision to list in London rather than New York will be seen as a boost for the UK government, which has been trying to make the country more attractive for fast-growing tech businesses.

Its efforts suffered a setback this year when the high-profile initial public offering of Deliveroo was described as the “worst IPO in London’s history” after the stock fell 26 per cent on its opening day.

Like Deliveroo, Wise said it would use a dual-class share structure. However, while Deliveroo’s set-up gave co-founder Will Shu 57 per cent of voting rights, Wise said it would offer enhanced voting rights to all existing shareholders, including earlier institutional backers such as Baillie Gifford and Fidelity.

Kaarmann said the dual-class structure, which expires after five years, would allow the company to “keep focusing on the mission we’ve always been working on, focusing on customers the way we have and transition smoothly into broader public ownership.”

Matt Briers, Wise’s chief financial officer, added that “we are incredibly mindful of the views of shareholders” and “if it’s not for everybody we understand”, but stressed that such structures were common among successful tech companies in other countries.

Wise, which was valued at $5bn in a secondary share sale last year, did not provide any guidance on pricing, which will be determined through an extended opening auction when it joins the market in a few weeks.

“Part of the reason to do a direct listing is to avoid this speculation and let the market set the price on the first day,” Briers said.

TransferWise opened in 2011 offering cheap cross-border consumer money transfers. Kaarmann and co-founder Taavet Hinrikus developed the business as a way to reduce the amount of money they were spending sending money between London and their native Estonia. They are now the Baltic country’s two wealthiest men, according to local business newspaper Aripaev.

The company renamed itself Wise in February in an effort to highlight a shift towards a broader product offering. Wise has been seeking to attract more profitable business customers and introducing more complex banking services such as multicurrency current accounts.

Wise’s core money transfer business targets wealthier customers than other specialists such as Western Union, and the company says its main rivals are mainstream banks.

It reported revenues of £421m in the 12 months to March, up from £303m the previous year. Pre-tax profit doubled to £41m.

Direct listings have become increasingly popular among technology companies in the US. Spotify started the trend when it joined the New York Stock Exchange in 2018, and has since been followed by groups such as Slack, Coinbase and Roblox.

Wise would be the first technology company to complete a direct listing in the UK. Although the LSE has long allowed companies to be “introduced” without raising capital, introductions have usually been reserved for demergers or secondary listings. Wise would be the largest company to be introduced without already being listed elsewhere or separated from another group in more than two decades.

Stephen Kelly, chair of government-backed entrepreneur network Tech Nation, said: “I hope Wise has opened an alternative avenue to the public markets for other UK technology businesses.”

Briers said the company considered alternative locations such as New York and Amsterdam, but was attracted to London because it had existing infrastructure to facilitate a direct listing and offered access to a global investor base.

He said recent government initiatives to encourage tech listings “helps with our conviction, but we’ve had this plan for quite some time”.



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Made.com’s first-day flop is another case of pandemic IPO opportunism

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It will be no surprise to its customers that Made.com’s prospectus arrived late and left a lot to unpack.

Shares in the self-assembly furniture retailer had been trading for more than five hours by the time the public were given a chance to examine the business in detail. An 8 per cent drop from the issue price, which at 200p apiece was at the very bottom of the indicative range, had already suggested some institutional jitters about what they had bought.

And no wonder. Made.com somehow contrived to lose £1.8m in the first three months of 2021.

The prospectus blurb leans heavily on how its model of taking orders before paying suppliers delivers superior cash flow. Yet even the pandemic-fuelled home improvement boom has not been enough to prove a business that in its 11th year of operation has yet to turn an annual profit.

Made.com’s handlers blamed the flop on IPO fatigue. It’s a weak excuse. Dealogic data show that the year to date has been quieter than average for London market floats and, while Deliveroo and Alphawave were both well publicised disasters, plenty of new issues including Moonpig, Trustpilot and Darktrace have headed northwards.

Made.com’s bigger problem is that it is an old-economy play from a sector whose fortunes remain tied to housing transaction volumes and supply chain management.

Furniture is notoriously difficult to sell profitably. Only Ikea has built a global presence in a fragmented market that remains hemmed in by national borders. Swapping a store fleet for a website does not fix inherent fragility of scale and seasonality that pushed companies including MFI, Habitat and ScS Upholstery into administration in 2008 when their suppliers pulled credit insurance.

Success stories since have mostly been marketplaces such as Wayfair, the $33bn-valued sector gorilla. It plugs 22m products from more than 16,000 suppliers into a distribution network that is built to handle the kind of bulky and unwieldy parcels that are a hindrance to its rivals’ delivery times.

Breadth and speed matter because pricing power is weak and customer switching costs are nil. Marketplaces live in fear of Amazon, whose pages are already filled with no-brand Chinese knock-offs, so they try for scale by throwing money at marketing. Wayfair has spent an average of 11 per cent of sales on advertising over the past five years, outspending its bricks-and-mortar rivals approximately fourfold.

The idea behind Made.com and its closest European peer, Frankfurt-listed Westwing, is to offer something more differentiated: a private-label collection in a magazine format that takes cues from Terence Conran. It is a niche helped out over the past year by a drop in marketing expenses as leisure industry closures diverted disposable income to homewares.

Benefits now look to be unwinding — Made.com’s administrative expenses before flotation costs rose 14 per cent year on year in the first quarter — and the formula is unproved in normal times. Westwing warned repeatedly throughout 2019 that ad spending was not boosting sales and entered the pandemic trading below cash value, having slumped more than 90 per cent from its float price in 2018.

Then there is what Made.com calls its “innovative, data led just-in-time supply chain”. It is also unproved. Recent freight line disruption meant lead times were up to eight weeks behind target levels, which pushed the recognition of about £8m of operating earnings from 2020 to 2021. Customers were already being asked to wait up to 16 weeks for delivery and can cancel free of charge at any time. Their requirement for patience has become a meme.

Brent Hoberman, Made.com’s co founder and highest-profile backer, marked the top of the dotcom bubble perfectly in 2000 with the IPO of Lastminute.com. With Made.com his exit was much earlier, coming as part of a refinancing in 2015 that culled most of the board. Taking the company public cuts Hoberman’s remaining stake from 7 per cent to less than 5.5 per cent.

That fellow backers chose this moment to sell down leaves the unavoidable feeling that the market is being delivered less than it bargained for.





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