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APRIL 14, 2000 VOL. 26 NO. 14 | SEARCH ASIAWEEK

Red Light, Green Light
China's big Net portals may hold off on IPOs
By ASSIF SHAMEEN

To list or not to list? That has been the question bedeviling China's largest Internet portals as their owners contemplated U.S. stock offerings that promised to be monstrously successful - if only they could bring them to market. Two weeks ago, the decision seemed made when Sina.com, China's number-one Web destination, filed a much-anticipated registration statement with the U.S. Securities and Exchange Commission. Netease and Sohu.com - respectively the second- and third-largest portals - also registered, indicating their own IPOs on the tech-heavy Nasdaq exchange were imminent.

Now, that appears not to be. Not only have valuations been sideswiped by plunging technology stock prices, mainland-based Internet companies wishing to go public outside of China continue to be forced to play an interminable game of "red light, green light," with the government. "We are still going to see big Chinese portals list this year," says a Hong Kong investment banker. "But it won't happen as soon as many of us were expecting."

Beijing regulators have been resistant all along to overseas listings because it would allow foreigners to hold stakes in the country's top Internet information providers. Last month, reservations appeared to ease as the China Securities Regulatory Commission said it would simplify requirements, and the Ministry of Information Industry announced it would not object to Net companies raising capital through overseas listings.

Then, another red light: in late March, Wu Jichuan, China's outspoken Information minister, said in a speech in Beijing that only the offshore assets of Internet companies could be listed. The statement was interpreted to mean that Sina.com, Sohu.com and Netease could go public only with their minor portals targeted at Chinese in Hong Kong, Taiwan and other countries - greatly undermining the price that stocks could fetch in an offering. "If you strip out the mainland content, there isn't much left in" the companies, says Michael Ward of Florida-based International Asset Advisory Corp., who runs a global Internet Fund.

The apparent policy flip skewered hopes of investors who have been awaiting China's first Internet IPOs like piranhas before feeding time. At the height of the dotcom boom, when stock prices for many Net plays were doubling and quadrupling on the first trading day, Sina.com was expected to command a huge premium. After all, Hong Kong-based Chinadotcom - which runs China's eighth-largest portal - listed on Nasdaq last summer and achieved a market capitalization of more than $7 billion.

But that was before the recent tech-stock slump. Chinadotcom shares have slipped more than 60% in the last five weeks. During the last week of March, U.S. Net companies listing on Nasdaq for the first time posted only moderate gains on the first day of trading, with some dipping below their offering price. Ward says investor demand for China plays remains, but dotcom fever may have passed its peak.

That doesn't mean the mainland's Internet stars will put off listing indefinitely. Tony Zhang, director of Internet consultancy ChinaLabs.com, says Netease, Sina, and Sohu have raised enough private funding to survive for at least a year. But venture capitalists who invested in 1999 are getting anxious about cashing out. "They were given a clear understanding Sina would list late last year," says a Hong Kong analyst. "They would rather not wait another year."

Zhang maintains Beijing will back away from its current position as soon as China enters the World Trade Organization, which he expects to happen soon. "If you list now you won't get a good price and probably can only list non-China assets," he says. "If you list a few months from now you can list all your assets." Observers are now guessing that, if tech stock prices settle down at current levels, Sina.com will list 4.6 million shares within two months. Netease and Sohu will follow shortly thereafter. The pricing of the IPOs won't be anywhere near what had been expected. But shares could still fetch a small fortune.

China's Top URLS
As of Dec. 31, 1999

1) SINA.COM.CN
2) 163.COM (NETEASE)
3) SOHU.COM
4) 163.NET
5) 263.NET
6) CHINA.COM
7) 21CN.COM
8) EAST.NET.CN
9) ONLINE.SH.CN
10) CPCW.COM

Source: China National Network Information Center

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