Shanda Games drops nearly 10 percent after $1 billion IPO

HONG KONG/NEW YORK (Reuters) - Shanda Games Ltd GAME.O shares fell nearly 10 percent on Friday, putting China's top videogame operator on track for one of the worst trading debuts this year.

Shanda Games, which completed the first billion-dollar U.S.-listed IPO in 17 months, dropped to $11.30 in afternoon Nasdaq trading, a fall that may have been caused by its decision to increase the size of its stock flotation earlier this week.

Shanda Games, which was carved out of China media company Shanda Interactive Entertainment Ltd SNDA.O, priced its American Depositary Shares for $12.50 each, at the top of the range, and raised $1.04 billion, making it the biggest U.S. offering by a Chinese Internet firm.

It sold 83.5 million ADRs, nearly a third more than it had originally planned, after earlier this week increasing the size of its share issue. That decision has helped drive down the stock, an analyst said.

“They took as much cash they could today, but by increasing the size (of the IPO) they created a supply and demand issue,” said Francis Gaskins, president of research firm IPO Desktop.

Shanda Games produces “Legend of Mir” -- a popular multi-player online role-playing game -- and operates “Aion” in China.

It competes with NetEase NTES.O and Tencent Holdings 0700.HK in China's increasingly competitive gaming landscape, as well as Ltd CYOU.O, a videogames company also spun off from a Chinese company, Internet portal Inc SOHU.O, earlier this year.

Shanda Games is one of seven U.S. IPOs this week, reflecting the markets resurgence. Please see: here

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Despite its strong IPO, some analysts have questioned whether Shanda Games would fare as well as, whose shares have soared 135 percent since its debut on Nasdaq in April.

“Do we have clear visibility this year of this company? Will the two games still grow at the same pace? ... I don’t think so,” said Credit Suisse analyst Wallace Cheung., which raised $120 million in its IPO, is the top performing U.S.-listed IPO this year.

The IPO from Shanda Games is a bid to capitalize on China’s red-hot online game market, the world’s largest and fastest growing with more than 50 million gamers.

Industry revenue is expected to rise 30 to 50 percent this year to between 24 billion yuan and 27 billion yuan ($3.5 billion to $3.9 billion), according to the Chinese government.

Shanda Games had earlier this week raised the number of shares in the offering by 32.5 percent. Its parent sold the majority of the shares in the IPO, leaving Shanda Games with about 15.5 percent of proceeds.

Shanda Interactive still holds shares representing 96 percent of voting rights.

The deal capped the busiest U.S. IPO week in nearly two years, with seven deals that raised $2.95 billion.

Shanda Interactive shares were down 10.7 percent in afternoon trading on Nasdaq.

Goldman Sachs Asia GS.N and JP Morgan JPM.N managed the IPO.

Additional writing by Melanie Lee; Editing by Anshuman Daga, Dave Zimmerman