November 1, 2007 / 2:52 PM / 12 years ago

China's Giant Interactive soars in debut

NEW YORK (Reuters) - Shares of Giant Interactive Group Inc GA.N rose 23 percent in their U.S. stock market debut on Thursday, continuing a stellar run of Chinese IPOs on U.S. stock exchanges in recent weeks.

The No. 3 Chinese online game maker traded on the New York Stock Exchange a day after an initial public offering that raised $886 million.

The company’s American Depositary Shares opened at $18.25, up 17.7 percent, and rose to $19.30 shortly after midday.

On Wednesday, the offering of 57.2 million ADS priced at $15.50 apiece, above a forecast range of $12 to $14, the 21st Chinese listing in the United States so far this year, and the most lucrative so far.

Giant Interactive's gain was in contrast to the wider market, with both the S&P 500 Index .SPX and the Dow Jones Industrial Average .DJI down by more than 1.5 percent, on news that Citigroup's subprime mortgage crisis may not yet be over.

“Even with a very treacherous market (Global Interactive) is still trading up,” said Scott Sweet, managing director of research firm IPOboutique.com.

HOT SECTOR

Chinese-U.S. listings went on a tear in October, as investors lined up to invest in firms with rapid growth, largely as a result of China’s burgeoning middle class. Longtop Financial LTF.N, China Digital TV STV.N, CNinsure CISG.O, Noah Education Holdings NED.N and Fuqi International FUQI.O all saw double-digit percentage gains in first-day trading.

Giant Interactive Chief Financial Officer Eric He told Reuters the company chose to list its ADS on the NYSE because it means greater clout than listing on any other exchange in Asia, Europe or the United States, and is a means to tap capital markets to help fund its aggressive growth plans.

“By being on NYSE we have access to the largest pool of capital and the highest standards of corporate governance,” he said.

Three Giant Interactive rivals — Shanda Interactive SNDA.O, and NetEase (NTES.O), which have had greater market share than Giant Interactive, and No. 4 The9 Ltd (NCTY.O) — are listed on Nasdaq.

The company, a relative latecomer to China’s fast-growing online game market, has carved itself a leading position by rolling out highly popular offerings, including ZT Online, the most popular online game in China in 2006, according to International Data Corp.

The company plans to use its IPO proceeds for general corporate purposes and acquisitions, according to a filing with the U.S. Securities and Exchange Commission. He said it already has acquisitions in its sights, but declined to elaborate.

Giant’s revenue rose ninefold in the first six months of the year to 687.4 million yuan ($92 million), while its net income surged nearly twelvefold to 512.3 million yuan.

“Giant Interactive is putting up outstanding numbers in a short time,” said Sweet, adding that Giant’s distribution system gives it an upper hand.

“It manufactures and distributes its own games, therefore avoiding royalties which is in direct contrast to its (competitors) in both China and abroad.”

Several more online games are in the wings for commercial launch, Giant said, including one being rolled out now — Giant Online.

The games are designed for a Chinese audience aged 18 and older.

China is the world’s second-largest Internet market by users, after the United States, with more than 160 million Web users at the end of June, according to the China Internet Network Information Center, a government-backed agency that licenses online domain names.

Underwriters led by Merrill Lynch MER.N and UBS (UBS.N) UBSN.VX have an option to purchase an additional 8.6 million ADSs to cover overallotments.

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