YY Inc., a Chinese social platform that engages users in real-time online group activities through voice, text and video, is looking to be the second Chinese company to list in the US since August 2011 after filing with the SEC on Monday to raise up to $100 million in an initial public offering. The last Chinese company to do so and the only one year-to-date was flash sales website Vipshop Holdings (VIPS), which priced its downsized IPO in March and fell over -30% in its first few weeks of trading. It has since recovered strongly to post aftermarket gains (+52%) and is currently 34% above its offer price.
After a long wave of accounting scandals from newly US-listed Chinese firms and subsequent outburst of Chinese-related securities litigation, IPOs from China dried up as investors questioned the overall transparency and earnings quality of these companies. This is evidenced by the declining number of US-listed IPOs from China over the last three years (41 in 2010, 12 in 2011, 1 YTD). Most recently, China Auto Rental (CARH), the largest car rental company in China, looked to list in April but postponed and subsequently withdrew its offering amid likely valuation pushback from investors.
Currently, only 2 of the 13 Chinese IPOs to list in the US since the beginning of 2011 are trading above their offer prices and the average return is -37%, with more than half down over 50%. In addition to Vipshop, Qihoo 360 (QIHU) is up 52% from its March 2011 IPO but after a 135% first-day return it has traded down -35% in the aftermarket.
YY’s financial backers include Walt Disney-affiliated Steamboat Ventures, Morningside Group, GGV Capital and Chase Coleman’s Tiger Global Management. Its co-founders come from online game developers Kingsoft (3888.HK) and NetEase (NTES). In August 2011, it hired the CFO from Giant Interactive (GA).
