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Missfresh tumble is just a blip for China ADS IPOs

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By Jonathan Breen
30 Jun 2021

An exciting rebound in the flow of China-into-US listings took an unexpected hit last week when online grocery start-up, Missfresh, plummeted on the first day of trading. While this is worrying, investors are still positive around these IPOs.

Missfresh raised $273m from its IPO on the Nasdaq last week, pricing its deal of 21m American depository shares at $13.00 each. But on its trading debut last Friday, the stock tumbled 25.69%, and by day two it had fallen 35% from its listing price.

The Chinese online grocer followed close behind Full Truck Alliance, which, by Monday’s close, was down 6.26% from its June 22 debut on the New York Stock Exchange.

The Missfresh debacle forced its rival, online grocer Dingdong (Cayman), to cut its US IPO size by a whopping 74% and sell fewer ADS in its offering. Its transaction was priced at $23.50, the bottom end of the price range, this week.

Dingdong debuted on the NYSE on Tuesday and closed the day just marginally higher at $23.52.

These are all worrying signs especially as they follow a spate of similarly poor performance recently from newly listed Chinese companies in the US.

But issuers should take heart. The poor performance doesn’t necessarily mark a waning in sentiment towards China-into-US listings.

Instead, what it reflects is an investor pool that is increasingly getting pickier about the stocks they want to buy, and the valuation levels at which they are keen to participate. With that in mind, issuers should be wise not to push for lofty valuations, but instead aim for realistic targets that appeal to investors.

Dingdong took the right approach to slash its IPO learning from the downfall of peer Missfresh.

Overall, investors and IPO-hopefuls have reason to celebrate. China technology stocks are back in favour, after taking a beating in the second quarter as Beijing ramped up a crackdown on industry giants.

The China-US IPO market is also heating up. There has been a rebound in China ADS listings in June, after nearly three months of just a handful of small deals hitting the market. Some companies are taking the opportunity to use listing approvals before they expire, while others are trying to get the jump on the summer slowdown.

There are still large deals getting done and investors ready to jump in for the right names.

Take the example of the $4bn-plus IPO from ride-hailing firm Didi Chuxing, set to be the largest China ADS listing since Alibaba Group Holding sealed its global record-breaking $25bn IPO on the NYSE in 2014. Didi has priced its listing at the top end of the range and increased the number of shares sold both signs of solid investor demand.

Missfresh’s tumble may still be fresh in both issuers’ and investors’ minds, and it does serve as a cautionary tale for Chinese firms planning US IPOs. But the market is resilient, and investors still have deep pockets. IPO-hopefuls in the wings shouldn’t hesitate to take the plunge.

By Jonathan Breen
30 Jun 2021