Smart Share Global, an Alibaba-backed Chinese power bank rental start-up, downsized a US$150m Nasdaq IPO last week as the threat of mass delistings and a string of fire sales in US-listed Chinese stocks dented investor appetite.
Smart Share Global opened books on Tuesday after a turbulent week for US-listed Chinese companies. The entire sector fell heavily on March 24, when the US Securities and Exchange Commission said it would begin implementing legislation that calls for the delisting of companies that fail to comply with US audit oversight requirements for three years in a row.
On top of that, a series of massive margin calls related to hedge fund Archegos Capital Management triggered fire sales of billions of dollars in individual Chinese stocks. The stocks sold were Baidu, Vipshop, Tencent Music Entertainment, iQiyi and GSX Techedu.
“The SEC move is not helpful but it has been flagged for a while. What really hurt investors’ confidence is the forced sell-downs in Chinese stocks,” said an ECM banker.
As of Monday’s close, Baidu shares had fallen 22% since March 24, with declines of 38% for Vipshop, 36% for Tencent Music, 43% for iQiyi and 57% for GSX Techedu over the same period.
New listings were caught up in the crossfire too. Chinese question-and-answer website Zhihu fell 10.5% on its debut on March 26. Non-Chinese listings were also under fire on Wednesday with SoftBank-backed property portal Compass halving its IPO to US$450m, video cloud provider Kaltura pulling a planned US$376m offering and communications play Intermedia Cloud Communications postponing a US$300m Nasdaq IPO.
Smart Share Global, which operates under the Energy Monster brand, apparently understood it was facing an uphill struggle and took steps to increase the chances of getting the deal done.
The company originally targeted a valuation of US$4bn–$5bn, said people close to the deal. However, the deal was launched at a much lower valuation of US$2.8bn–$3.3bn, with 17.5m primary American Depositary Shares, or 6.6% of the enlarged share capital, marketed at US$10.50–$12.50 per share.
Smart Share Global also conducted a compressed two-day bookbuilding to reduce market risk, and locked in around half of the demand for the original deal size of US$219m. Hillhouse Capital, Aspex Master Fund and an affiliated company of Xiaomi indicated their interest to subscribe to US$50m, US$50m and US$10m of the IPO, respectively.
Priced to go
Despite all these measures and a strong shareholder background (SoftBank and Xiaomi also own a stake), the float priced below range at US$8.50 with the ADSs sold slightly increased to 17.7m. The final price represents a 2020 P/E of 21.5.
“You can tell investors’ risk appetite is shrinking. The books were covered, but the company had to price it lower to include good quality demand so as to secure a better debut performance,” said a person with knowledge of the matter. The shares were due to debut on Thursday after IFR went to press.
Some sizeable China-to-US offerings are lining up in the second quarter, including the US$1.5bn–$2bn float of SoftBank-backed Uber-like Full Truck Alliance and the US$500m–$1bn listing of Ant Group-backed bike-sharing company Hellobike.
Bankers expect these issuers will have to either wait until markets stabilise or sell shares at a more competitive valuation.
Goldman Sachs, Citigroup and China Renaissance were the bookrunners on Smart Share Global’s float.
Founded in 2017, the company posted revenues of Rmb2.7bn (US$417m) for 2020, up 41% from 2019. Its net income was Rmb75m in 2020, down 55% from 2019.
The company offers power bank rental services in stores and restaurants across China. It had around 219.4 million cumulative registered users as of December 31 2020, up from 149.1 million a year earlier.
Before the IPO, Alibaba owned a 16.5% stake, Hillhouse Capital 11.7%, Shunwei Capital 8.8%, SoftBank Ventures Asia 7.7% and Xiaomi 7.5%.