U.S. Debut for Chinese Education IPO

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At the final price, the deal was a bit over 1.5 times covered and attracted just under 30 investors. As usual for US deals, the majority of the demand came from various US-based accounts, including small-cap funds, growth funds focusing on China, some specialist education funds and some hedge funds. Less than 15% of the demand came from Asia and a similar amount from Europe.

One source says there was interest at around the $7.50 level, but the fact that the price range was lowered through a new filing with the US regulators suggests that the bulk of the orders were placed at $7. Since US IPOs can be priced 20% above or below the original price range, the bookrunners could have fixed the price at $7.20 even if they had retained the initial range.

CDEL has grown rapidly in recent years, but is still quite small with revenues of only $11.8 million in fiscal 2007. Net profit rose from $300,000 in fiscal 2005 to $5.4 million in fiscal 2007, and analysts expect it to continue to grow strongly in the coming few years as the company introduces new products and courses.

The outcome may not look too encouraging for other Chinese companies hoping to do an IPO in the US. Earlier this week, GCL Silicon, which makes polysilicon for the use in solar wafers, also decided not to launch a formal roadshow and bookbuilding for its planned IPO of up to $862.5 million at this time. Separate sources say factors like GT Solar's poor debut, a lower-than-expected earnings report by MEMC Electronic a day earlier - which resulted in a negative sentiment for solar power plays in general - and the current thin appetite for IPOs all played a role in the decision. MEMC is a supplier of silicon wafers to the chip and solar industry.

GCL Silicon, which started investor education on July 21 with a hope of launching the deal late last week or early this week, will now likely not come until early September. Credit Suisse and Morgan Stanley are joint bookrunners.

On the other hand, some observers note that CDEL shows it is possible to get a deal done, if you offer enough of a discount versus the sector peers. On that basis, China Mass Media International Advertising, which is also currently in the market, should be able to pull through, they say. The Beijing-based TV advertising agent is seeking to raise between $75 million and $104 million with the help of sole bookrunner Merrill Lynch. The deal is set to price after the New York close tonight.