* Xunlei, Shanda unit postpone IPOs citing market conditions
* Risk appetite lowered after Chinese stock accounting
* U.S.-listed Chinese plays have staged a modest rebound
(Adds analysts comments, Moody's and Fitch reports on
By Melanie Lee
SHANGHAI, July 21 Two Chinese Internet firms
have postponed their U.S. fundraising plans due to volatile
global markets and after a series of accounting scandals
tarnished the reputation of overseas-listed Chinese companies.
Online video firm Xunlei Ltd, in which Google Inc
has a small stake, said on Thursday it had decided to postpone
its initial public offering on the Nasdaq because of stock
market conditions. The Shenzhen, China-based company had already
delayed the offering in June and was set to raise up to $114
Chinese e-book firm Cloudary Corp, previously called Shanda
Literature, will also postpone its fundraising plans due to poor
market conditions, IFR, a Thomson Reuters publication, reported.
The decisions come as a slump in global equity markets has
forced several companies to postpone or cancel their IPO plans.
Contributing to the weak market sentiment are recent allegations
that U.S.-listed Chinese companies have used fraudulent
accounting to inflate their books as they listed on U.S.
exchanges via reverse takeovers.
"Some of those concerns are valid," said Kelvin Ho, an
analyst at Yuanta Securities in Hong Kong. "To be fair, when the
risk appetite is reducing or valuations are high, (investors)
don't want to take that corporate governance risk."
The IPOX China 20 Index of Chinese companies that
recently went public is down 5.4 percent since the beginning of
the month and has tumbled more than 11 percent since reaching a
peak for the year at the end of April.
Cloudary is a unit of Shanda Interactive and
provides online literature and e-readers in China. The firm was
hoping to raise around $200 million in its New York listing.
On top of the volatile markets, fund managers have been put
off by high valuations on several recent Chinese technology and
Internet IPOs in the United States.
Chinese social network company Renren traded at
nearly 80 times annualized sales in 2010 when it went public in
May, with other internet companies such as Jiayuan.com
International Ltd and NetQin Mobile Inc also
trading at high valuations, analysts said.
"Investors have less risk appetite now compared to the past,
it also has to do with valuations. If you look at the first
quarter a lot of the new Chinese Internet IPOs had very high
valuations," said Elinor Leung, a Hong Kong-based CLSA analyst.
"Now the market is slightly better but (investors) may not
be willing to pay for those valuations," Leung said.
Though no issues have been raised on Xunlei or Cloudary,
Chinese companies listed in the United States have seen their
shares hit across the board by concerns over accounting fraud at
some firms. The problems at these firms were brought to light in
part by research reports from short sellers such as Muddy
Ratings agency Moody's Investors Service last week raised
warnings about accounting and corporate governance risks at
Chinese companies, naming 49 small- and medium-sized companies
for potential issues.
Fitch Ratings said in a report on Monday Chinese companies
had "widespread weaknesses" in transparency, reporting and
control, but those concerns were already incorporated in their
U.S.-listed Chinese tech heavyweight Baidu Inc and
Sina saw their shares plunge in the early part of June
after Muddy Waters released a report on Sino-Forest
alleging Sino-Forest was involved in accounting fraud.
Sino-Forest has denied any wrongdoing.
Baidu and Sina shares have now returned to pre-scandal
levels. Neither company has been associated with any accounting
or corporate governance issues.
JPMorgan and Deutsche Bank (DBKGn.DE) were hired as
lead underwriters for the Xunlei offering. Goldman Sachs
was arranging the Cloudary IPO, with China International Capital
Corporation (CICC) also helping to underwrite the deal.
(Additional reporting by Elzio Barreto and Shu-Chen Yang in
HONG KONG and Sharma Himank in BANGALORE; Editing by Jacqueline
Wong and Lincoln Feast)