There are two things to focus on when playing in the IPO sandbox. One is the company going public and the other is its pricing terms. When the IPO sands flow from Asia in the form of a dual listing, a third dimension comes into play: market risk.
Things are done differently in the Far East. The major difference is that there is a lag of a few days between when an IPO is priced and when it starts trading – and this leaves the IPO vulnerable to market conditions. That could be risky.
LINE in the Limelight
Let’s go to this week’s headliner.
LINE Corporation (LN – proposed) is coming to town with the fanfare of a three-ring circus. The chatter is that there’s huge demand for the IPO and it is reportedly wildly oversubscribed.
LINE is a Korean-owned and Tokyo-based provider of mobile messaging services that include free instant messaging, voice calls and video calls. The company is a pioneer and a leader in the creation and design of Stickers, which let users express their emotions. LINE also serves as a smart portal to mobile games, music and other social networking and interactive content. It offers online-to-offline (“O2O”) services such as payment services, restaurant reservations, job postings and taxi booking, according to the prospectus. LINE’s major markets are Japan, Taiwan, Thailand and Indonesia.
The 35 million American Depositary Shares (ADS) LINE IPO is expected to be priced between US$28.50 and US$32.50 per ADS on Monday, July 11, 2016. Three days later, the ADS are set to begin trading on the New York Stock Exchange on Thursday, July 14. The next day, LINE’s common stock is scheduled to begin trading on the Tokyo Stock Exchange on Friday, July 15.
Translation: With dual listings, people play by the hometown rules.
Nobody seems concerned about the time lag with the LINE offering, but nature has been known to side with the hidden flaw. Last month’s Brexit surprise showed what a difference a day makes.
History Lesson from Hong Kong
Let’s look back and see what happened years ago.
From 1999 through the first few months of 2004, dual listings for Chinese IPOs were popular. Available records show about 12 of 33 Chinese IPOs priced during that time had dual listings.
Hong Kong’s Hang Seng Index was on fire.
On March 1, 2004, the Hang Seng closed at 13,918.65, UP 61.9 percent from 8,596.89 on April 1, 2003, its previous closing low. What people did not know was that the Hang Seng was on the brink of collapse. On March 11, 2004, the index closed at 13,024.06, DOWN almost 900 points or 6.4 percent from its previous high set just 10 days earlier.
The U.S. IPO market was alive in those days (248 IPOs were priced in 2004) and on March 1, two Chinese deals with dual listings were on the calendar.
One was TOM Online and the other was Semiconductor Manufacturing International (SMI).
TOM Online’s IPO was priced on March 5, 2004, at US$15.552 per ADS. It had a 4-Star SCOOP rating. The IPO handicappers were giving the IPO a $5 opening-day premium. The stock opened on March 11, 2004, its first day of trading on the NASDAQ, at $15.75 and closed at $15.58, UP only 2.8 cents from its IPO price. TOM Online’s debut on the NASDAQ came on the same day as the Hang Seng’s drop of 6.4 percent.
Semiconductor Manufacturing was priced on March 11, 2004, at US$17.50 per ADS. Initially, it had a 3-Star SCOOP rating. The IPO handicappers had given it an opening-day premium of $2 to $3. Due to the meltdown of the Hang Seng, the call was lowered to a 2-Star SCOOP rating, up 50 cents to $1. The stock made its U.S. debut on the New York Stock Exchange a week after it was priced – on March 18, 2004 – opening at $17 and closing at $15.52, DOWN 11.3 percent from its IPO price.
That just about ended the saga of dual-listing IPOs from Asia.
Big Player in the Hunger Games
AdvancePierre Foods Holdings (APFH – proposed) is another IPO scheduled to make its debut this week.
AdvancePierre, based in Blue Ash, Ohio, is a 70-year-old food producer and distributor that markets about 2,600 stock keeping units (SKUs). The company says it holds the No.1 or No. 2 market-share position in nearly all of its major product categories. Its frozen products include ready-to-eat sandwiches such as breakfast sandwiches, peanut butter-and-jelly sandwiches and hamburgers; sandwich components such as fully cooked chicken patties, hamburgers and Philly steaks, and other entrees and snacks such as country fried steak, chicken Kiev and other stuffed entrees, chicken tenders and cinnamon dough bites. AdvancePierre supplies its products to such varied destinations as workplace vending machines, school and hospital cafeterias, convenience stores and the frozen food aisles of national and regional grocery stores.
Bankers plan to price 18.6 million shares at $20 to $23 each on Thursday evening, July 14, to trade Friday morning, July 15.
Looking into the week of July 18, the calendar has nothing. This isn’t surprising. Wall Street’s attention was on LINE and not everybody was back from the July 4th holiday. But anything could happen on Monday morning, which could set the stage for the following week.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinion.