Shanda Files For Nasdaq IPO; Lowers Expectations
Shanda Interactive Entertainment (formerly Shanda Networking),
China's leading online gaming company, has filed for an
IPO in the US to raise US$200 million.
Earlier, the company had planned to raise US$300 million,
but because of a change in market conditions in the US,
mainly based on changed perceptions of Chinese companies,
it has been revised downward to US$200 million.
Virtually all Chinese companies which have come to market
in the past two months have traveled south following their
offering price. This has been based on revelations surrounding
China Life after its IPO, where a US$560 million loss
in the parent company was not revealed until after the
IPO. In another case, the CFO of Shanghai-based SMIC (Semiconductor
International Corp.), opined that the company had sufficient
capital to fund expansion before the company went public.
(These comments were quickly denied by the CEO.)
Shanda has fallen under the same pall on Wall Street,
even though its underlying fundamentals are sound. It
is still the largest online game player company in China,
and has succeeded in attracting Tang Jun, former Microsoft
China president, to become
its president. Earlier in 2003, the company was able
to attract a strategic investment from Softbank
Japan, which was able to help the company's valuation.
Softbank is an investor in Yahoo! Japan, and has been
a major player in the development of broadband in Japan.
The underwriter for the US IPO is Goldman Sachs.
In late 2003, Timothy Chen Tianqiao, the founder of the
company, was listed as the sixth wealthiest person in
China according to the Forbes
list, with a net worth of US$490 million. That valuation
priced in the predicted post-IPO valuation of the company
at US$1-2 billion.
Revenues were US$27 million in 2003, and continue to
grow at a rapid clip. Now that the online gaming industry
has the support of the Chinese government as a strategic
industry, more players, such as Netease,
an Internet portal and Kingsoft,
a maker of anti-virus and English dictionary software,
have entered the rapidly emerging field. The result is
a highly volatile and competitive market with many players.
Ultimately, the winners will be the companies which can
generate the most popular titles on a long-term basis.
In many ways, the Internet market in China is now similar
to the way it was in the US in 1999. The biggest difference
is that the Chinese companies have revenues and earnings.
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