TOMO .news
Reuters
Third Chinese IPO flop as SMIC stock down on debut
Wednesday March 17, 1:08 pm ET
By Steve James
NEW YORK, March 17 (Reuters) - The third Chinese initial public offering in New York this month fizzled on Wednesday, as shares in chipmaker Semiconductor Manufacturing International Corp. (SMIC) (NYSE:SMI - News) fell in the company's market debut.
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SMIC's disappointing start and anemic after-market performances by Linktone (NasdaqNM:LTON - News) and TOM Online Inc. (NasdaqNM:TOMO - News) bode poorly for Chinese companies planning overseas IPOs worth a combined $23 billion this year.
One analyst suggested investors might in future shy away from highly touted Chinese offerings. "This has basically poisoned the Chinese IPO market," said David Menlow, president of IPOfinancial.com, an online IPO newsletter. "I can't believe the markets will be receptive to the next (Chinese) deal."
Another analyst said a gaffe by SMIC's chief financial officer may have spooked some investors. The company acknowledged the executive made "inaccurate statements" when she said SMIC would have sufficient capital to meet planned expenditures through 2005. Those comments contradicted what the company said in a filing with U.S. securities regulators.
Mark FitzGerald, who covers SMIC's rivals in Taiwan for Banc of America Securities (News - Websites) , said the misstep raised concerns whether SMIC would need to raise cash, diluting the shares.
"It makes people wonder what's really going on here," he said. "That doesn't give people a lot of confidence that they're really on top of it."
Drew Peck, a semiconductor industry analyst with America's Growth Capital, a Boston-based investment bank, said he was not surprised by SMIC's first-day flop, considering the industry was "a little shaky," with flat demand, especially for chip-making foundries like SMIC.
"This typically happens when you have a hotly anticipated IPO, especially in a new space like China, where it has been heavily publicized, where a fair amount of stock is going out and lots of people put in orders on speculation.
"The net result is that IPO day can be anti-climactic," said Peck. "It's going to take work by SMIC to create interest to go beyond investors who just put money in a Chinese IPO."
SMIC's IPO, which raised $1.8 billion when priced last week, had been heavily promoted, with some Hong Kong analysts predicting the stock would rise as much as 20 percent on its first day on the New York Stock Exchange (News - Websites) . It begins trading in Hong Kong on Thursday.
But after senior SMIC executives rang the NYSE's opening bell, the stock slipped nearly 10 percent to $15.80 in afternoon trading from its IPO price of $17.50 per American depositary share.
The other two March IPOs from China also continued their slide since going public on the Nasdaq. In early-afternoon trading, Linktone was down 4.2 percent at $10.63, way below its IPO price of $14 on March 4. TOM Online, whose March 9 IPO price was $15.55, slipped 4.2 percent to $12.40.
Fitzgerald said a further investor concern was that chip stocks have already peaked and that SMIC, a relative newcomer to the industry, may have trouble meeting its targets.
"People's expectation for the company, in terms of the actual financial performance, is probably too high," he said. "People are looking at next year and saying 17 percent operating margins. I just find that a heroic leap given where they are today."
Menlow said it was difficult to say precisely what caused the stock drop for SMIC, which is 11.4-percent owned by mobile phone giant Motorola Inc. (NYSE:MOT - News). "When it prices at the upper end of the range and opens down, there are so many inconsistencies. I am at a loss, but SMIC has decimated a huge number of investors today.
"There must be a major disconnect from what people were led to believe. Maybe it's something connected to the 5-day delay (between a foreign IPO pricing and start of trading)."
He said Linktone and TOM Online were profitable companies and SMIC was successful in the semiconductor field. "After the performances of recent deals, the only way a Chinese IPO will be successful will be if they have no expenses against their revenues," he said.
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