China Real Estate, ZST Digital IPOs to gauge state of US investors’ taste for Asia investments

2 IPOs to signal US desire for China investments

NEW YORK — Two Chinese IPOs expected to start trading this week are going to be a gauge for Americans’ taste for Beijing’s offerings, some of which have flopped this fall.

Real estate database and consulting company China Real Estate Information Corp. could raise as much as $248.4 million in an initial public offering of U.S.-traded shares, expected to launch Thursday.

The 18 million American depositary shares are expected to price between $11.80 and $13.80 each, and would equal nearly 13 percent of stock outstanding.

The offering comes on the heels of what one IPO watcher calls the year’s most disappointing deal. Scott Sweet, senior managing partner at IPO Boutique, said that had the $1 billion IPO of Chinese video game company Shanda Games Ltd. in late September gotten a warmer reception, investors “would be all over” China Real Estate, one of the country’s biggest providers of information on land and buildings. Shanda’s shares dropped 14 percent on its first trading day and closed Monday still below its issuing range.

Recent Hong Kong IPOs, including some big Chinese real estate developers, also didn’t do as well as expected.

Still, China Real Estate allows the American investor safer exposure to the Chinese property market. That sector is still hot, if volatile, and it’s growing, said Nick Einhorn of Renaissance Capital.

China Real Estate is currently a subsidiary of real estate services company E-House Holdings Ltd., which trades in the U.S. It is also partly owned by Chinese online portal Sina Corp.

After the IPO, E-House will own more than half of China Real Estate’s shares, and Sina about a third of the stock. Investors who buy shares in the IPO will own another 13 percent.

China Real Estate intends to sell Internet advertising on Web sites acquired from Sina.

The U.S. listings of E-House, Sina and China Real Estate may help attract investors. It’s not only much easier for Americans to buy up U.S.-based shares than foreign stocks, but trading on better-established U.S. exchanges “adds a premium value to a company’s brand,” said Scott Gehsmann, capital markets partner for accounting firm PricewaterhouseCoopers. That’s a “quality seal of approval” for American investors who want to diversify their equity portfolios.

China Real Estate said it will use the offering’s net proceeds, expected to be about $209.7 million, to fund capital expenditures and expand sales and marketing efforts.

In the six months ended June 30, China Real Estate profit grew to $11 million from $7.2 million in the same period in 2008. Sales rose nearly 62 percent to $31.2 million from $19.3 million.

The company will trade as “CRIC” on the Nasdaq. Underwriters include Credit Suisse, UBS Investment Bank and BofA Merrill Lynch.

Also this week, investors expect a smaller Chinese IPO of about $25 million. ZST Digital Networks Inc., a provider of network equipment to Chinese cable system operators, intends to sell more than 3.1 million shares between $7.50 and $8.50 each.

The company said in a regulatory filing that it expects net proceeds of about $24.2 million if underwriters buy all shares available to them. It will use the funds for general corporate purposes and to pay for costs associated with a new venture involving GPS devices. The aim of the offering is also to gain future access to capital markets, ZST said.

ZST Digital will trade as “ZSTN” on the Nasdaq.