Chinese online video company Tudou Holdings Ltd priced shares in its initial public offering within the expected range Tuesday, even though investor sentiment toward U.S.-listed Chinese stocks and a market rout had suggested it would be difficult.
Investor appetite for U.S.-listed Chinese stocks has proven touchy after a series of accounting scandals, and 10 of the 12 IPOs scheduled for last week were pulled as concerns about the U.S. economy and the European debt crisis created a volatile trading environment.
Still, Tudou and its owners sold 6 million American Depositary Shares for $29 each, raising $174 million. They had planned to sell ADS for $28 to $30 each.
Much like Google Inc's YouTube, Tudou allows users to watch, upload, rate, comment on and recommend videos. It is the second-largest online video company in China and makes money primarily by selling ads but also sells mobile access to its site to China Mobile and China Unicom customers.
It had planned to go public last year, but the plan stalled due to a lawsuit by the former wife of founder, Chairman and Chief Executive Gary Wang.
Tudou's revenue has risen sharply in recent years, but the company's losses have also widened. In the most recent reporting period, the three months ended March 31, the company's net revenue rose 167 percent to 79.4 million yuan, or $12.1 million. Its net loss attributable to ordinary shareholders widened 795 percent to 340.7 million yuan, or $52 million, in the same period.
Tudou, whose main business operations are in China but which is registered as a Cayman Islands holding company, said in its regulatory filings it expects to have enough operating cash flow to continue as a going concern and to be able to raise funds for capital commitments and working capital by issuing redeemable convertible preferred shares or taking loans.
Tudou in the risk factors section of its prospectus, however, said it had found a "material weakness and a significant deficiency" in its internal financial controls.
The company said it does not have enough people with knowledge of U.S. accounting rules, which is not uncommon for Chinese companies. It also said its lack of internal controls had resulted in errors in recording and accounting for redeemable convertible preferred shares, share-based compensation, litigation losses, advertising agency fees, and certain other balance sheet line items.
Tudou, whose name means "potato" in Mandarin and conjures images of an Internet couch potato, said it plans to use its share of the IPO proceeds for content, Internet bandwidth, and working capital and general purposes.
CEO Wang is selling a small portion of the shares he controls in the IPO. Other, non-selling shareholders include funds affiliated with Singaporean sovereign wealth fund Temasek.
Credit Suisse, Deutsche Bank Securities and Oppenheimer & Co were the underwriters on the Tudou IPO. The shares are expected to begin trading on the Nasdaq on Wednesday under the symbol "TUDO".
Shares of rival Youku.com, which went public in December, have risen nearly 87 percent since their IPO. Youku and Baidu Inc were interested in buying Tudou according to Chinese media reports last week but a source close to the situation denied the reports.
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