For once, a Chinese company plans a US IPO with an old-fashioned business model that any investor can understand – auto rentals.
China Auto Rental has started the roadshow for an initial public offering on Nasdaq. China followers will be watching this IPO keenly to judge the current state of western investors’ love-hate relationship with all things Chinese, which has been going through a tough patch recently.
After struggling to understand the dynamics of markets as diverse as social media, solar panels and palm oil, western investors have become disillusioned with “China plays” as too many of these western-listed IPOs have disappointed and several have been hit by scandals.
So will China Auto Rental (CAR) be different? At first sight, it seems to have a lot going for it. CAR is a pure play on China’s consumer boom. As well as being a leader in China’s fast-growing auto rental market, the firm has first-mover advantage — there are no other Chinese car rental firms quoted in the west — and it has a simple business model.
Equally importantly for nervous investors, CAR has as its largest shareholder Legend Holdings, which is the parent of HK-listed computer firm Lenovo — for more on Lenovo see these EngagingChina stories. Legend owns over half of CAR and will sell any shares in the IPO
The company is only planning to sell 14.9% of its share capital on Nasdaq, raising between $115m and $137m – it had earlier considered sellling up to 25%. As well as the reduced float, the company has opted for pretty competitive pricing. The price range for the new shares is pitched at a similar multiple to traditonal western peers such as Avis or Hertz, rather than, as might have been expected, priced on higher multiples typically commanded by more exotic car rental plays such as Zipcar or Localiza, which operates in Brazil.
CAR was established in September 2007 and headquartered in Beijing. It is China’s largest auto rental business with over 500 service locations, supported by a fleet of around 26,000 cars.
There were just 12 listed Chinese IPOs in 2011, down sharply from 41 listings in 2010. After a drought that lasted almost six months, Vipshop Holdings, an online fashion retailer, had an IPO in March. Its IPO price was cut in a bid to tempt jaded investors but even so, the company is trading well below its IPO price. More on the Vipshop flop in this Forbes story.