China e-commerce firm lists on NYSE

PE-backed e-commerce site LightInTheBox has listed on the US stock exchange, as Chinese businesses face more stringent approval processes when listing in the US.

Chinese e-commerce business LightInTheBox has listed on the New York Stock Exchange, becoming the first Chinese company to launch an IPO on a US stock exchange this year, according to a company statement. 

The IPO reportedly raised $79 million, with a statement from China Renaissance, which acted as co-manager on the listing, earlier estimating it would raise between $70.6 million and $87.2 million.

The company is backed by China-focused private equity firm, TrustBridge Partners, and venture capital firms GSR Ventures and Ceyuan Ventures, who invested a combined $35 million in the firm in October 2010 in a series-C financing round, according to an earlier China Renaissance statement. GSR and Ceyuan were existing investors in the company, but it is unclear whether any of the firms have now exited their stakes in the business. 

The firms could not be reached for comment by press time. 

Only two Chinese companies listed in the US in 2012: in March, Vipshop, an online discount retailer; and in November, social media platform YY, which brought investor Steamboat Ventures a 25x return on an undisclosed initial investment in 2008, PEI reported earlier. 

“It has been a difficult time for Chinese companies that want to go IPO in the US,” said Tracy Zhou, partner at Han Kun Law, which worked as legal counsel on the LightInTheBox deal. “The market is better than before, but we know that there are many companies preparing for IPO now and it is hard to say whether the market can go back to how good it was two years ago. Some good companies may be able to do a [listing], but not all.”

Chinese companies have struggled to list on US exchanges after a series of accounting scandals involving US-listed Chinese businesses drove down valuations.

Since then, a number of private equity firms have taken these businesses private, sometimes paying high premiums on their discounted share prices. 

In May, CITIC Capital completed an $890 million buyout of NASDAQ-listed AsiaInfo Linkage, paying a 53 percent premium on its 30-day trading average, according to a joint statement. Shortly after, The Blackstone Group offered $662 million to take private Pactera Technology, the bid representing a 43 percent premium on its share price before the deal went public, according to a Pactera statement. 

However, while providing private equity opportunities, the low valuations have prevented a number of Chinese businesses from listing on US exchanges, with the US Securities and Exchange Commission paying particular attention to the VIE-structure and financial statements when approving such listings, according to Zhou

For Chinese companies, the SEC is most concerned with the VIE-structure and whether the listing company has effective control over the operating companies in China. The other is, of course, the financials.

Tracy Zhou, partner, Han Kun Law

“[During] the approval process, the SEC tends to ask more questions. The time for preparing for an IPO is much longer than before – before we could do it in around nine months to a year, but there are many companies [waiting] that started to prepare in 2011,” she added.

“For Chinese companies, the SEC is most concerned with the VIE-structure and whether the listing company has effective control over the operating companies in China. The other is, of course, the financials.”

Companies that have been under investigation by the SEC or targeted by research firm Muddy Waters have usually been accused of overstating their assets in China. Moreover, under the VIE-structure, which allows foreign investors to have interests in Chinese technology companies, equity holders do not always have direct interest in the earnings and revenue stream and do not have a claim over the company.

However, despite the danger that Chinese companies may continue to be undervalued on US exchanges, Zhao says that technology companies would still favour a US listing.

“For many technology- or internet-based companies, the US market is still first choice for them because US investors are [more technology focused]. In Hong Kong or mainland China, investors prefer more traditional companies that have large amounts of resources or fixed assets.”