Longtop Financial Technologies Plans IPO
Several news sources picked up a press release from Longtop Financial Technologies (LFT). Apparently this entity is a subsidiary of Longtop Group, one of China’s leading providers of software & system solutions to the financial industry, and a sister company to Longtop International, one of the recent upstarts in IT outsourcing.
A couple of things to note about this announcement:
- I’m told that the Longtop Group is already listed on the Shanghai exchange, so, for all practical purposes, the organization has already done a public offering. This announcement covers the issuance of American Depositary Shares, not a new offering of stock.
- More importantly, I’m stunned by what they plan to do with the money, “Longtop Financial plans to use proceeds from the offering to acquire an office building, pay a previously declared dividend and for general corporate purposes.“
Am I going nuts? They plan to take money from U.S. investors and pay a dividend to their current owners! Can this possibly be true? It’s not quite as outrageous, but they also intend to use some of the funds to buy a building - how does this build value in their business? For prospective western investors, there are probably more efficient ways to buy commercial real estate in China.
Remember that this is for a company that saw a year over year decline in revenue for the most recently reported quarter. Their revenue for the first half of 2007 was $16.1M, but they believe that they can raise as much as $200M from this offering of ADS.
We’re all shaking our heads and wondering about what this means. Are Chinese companies so hot now that westerners will pour money into them regardless of the underlying value? I don’t mean to be Chicken Little, but these are the sorts of behaviors that help form bubbles.
Will you run out and buy a bundle of these shares?
UPDATED: 2007.10.12
Reuters reports on the terms of the offering:
Oct 9 (Reuters) - China’s Longtop Financial Technologies Ltd on Tuesday registered its initial public offering of 10.4 million American Depositary Shares at an estimated price of $12 to $14 per ADS.
In an amended filing with the U.S Securities and Exchange Commission, the software developer said it plans to sell 8.5 million ADSs while stockholders will sell an additional 1.9 million ADSs.
The company said it applied for a New York Stock Exchange listing under the symbol “LFT.” (Reporting by Sayantani Ghosh in Bangalore)
I read another source that puts the actual number at 10.43 M ADS, so let’s pick the middle of the range $13.00 per ADS. That would suggest that Longtop expects to raise somewhere in the neighborhood of $135.6M.
Technorati Tags: China, China Outsourcing
Good article. I am searcing a lot after this company and my scepticism is big enough, to thing twice.
Have you some recomendation if you are more in shares and that kind of stuff.
Comment by Andres — 2007.10.09 @ 17:04
Andres- Thanks for the kind words. Right now, I would be very cautious about investing in any of the Chinese outsourcing companies that are primarily listed in Asia, with ADS based offerings in the U.S. The bottom line with these situations, is that, as an investor, you’ll have no credible way of evaluating the performance / execution of the companies you “own”. Instead, if you really want to play the space as an investor, rather than a gambler, I’d urge you to wait until some of the Chinese companies have reached a level of credibility & scale that allows them to list on a mainstream exchange. Strong rumor has it that Worksoft Creative Software Technology Ltd. ( http://www.worksoft.com.cn/ ) will be among the first. I’ve also heard that hiSoft Technology International Ltd. ( http://www.hisoft.com/ ) is trying to meet the standards for a western IPO. — Good Luck!
Comment by deans — 2007.10.10 @ 07:11