Chinese IPOs in US to surge by 50% in 2011

SHANGHAI - The number of Chinese companies listing in the United States will surge by 50 percent this year after hitting a record high in 2010, said a senior partner of Ernst & Young on Monday.

He Zhaofeng, partner and Greater China IPO Leader with Ernst & Young, said approximately 60 Chinese companies will list in the US this year, from 41 in 2010.
"Actually, we are currently doing preparation work for about 20 companies to list in the US this year," said He.

The rise will be triggered by the expected appreciation of the yuan, China's projected economic growth and the successful number of IPOs last year, He said.

The successful US listing by Youku.com in 2010 - when Ernst & Young was the accounting firm for the IPO - will encourage more Internet and high-tech companies to seek IPOs in the country this year, He said. Youku, China's leading online video content provider, more than doubled its IPO price on the New York Stock Exchange on Dec 8, opening at $27 and closing at $33.44.

"Similar companies will believe that if their peers can do it, they can too. They will also seek funding through the IPOs to keep up with their competitors, who have already listed in the US," said He.

Meanwhile, the strong expectation that the yuan will appreciate in 2011 will also encourage US investors to buy shares in Chinese companies, He added.

Companies listed in the US, but whose main business is usually based in China, use the yuan to calculate their revenue and profit. Therefore an appreciation of the currency will make companies' dollar-denominated financial statements look better, and help to maintain the share price.

The yuan has appreciated about 4 percent against the dollar since mid-June 2010. An economist at UBS, Wang Tao, predicted in January that the currency will appreciate another 6 percent this year.

Ernst and Young's He said China's expected economic growth of 8 percent this year also make more US listings a "natural progression".

"The global IPO market has rebounded in the wake of the financial crisis. With the burgeoning recovery and China's economy maintaining its headlong charge, it's a sure thing that more Chinese companies will seek IPOs globally, and especially in the US," said He.

Among the 60 companies to be listed in the US this year, most will be small and medium-sized Internet or high-tech companies that have great growth potential, but have yet to post a profit, said He.

"Those companies usually find it hard to list here in China, where companies have to post a stable profit before they can file for an IPO," said He. "But in the US, all you have to do to get listed is to obey the information disclosure rules and the investors will decide whether you survive or not."

He expects that as China's stock market matures, IPO rules will change and become similar to those in the US, where the climate is better for "protecting investors and nurturing start-ups that show potential".

(China Daily 03/08/2011 page 15)