Sohu.com Inc. (SOHU:US) led gains among Chinese equities in New York on speculation Qihoo 360 Technology Co. is a step closer to buying a stake in its Sogou online search engine unit.
The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. rose 0.5 percent to 95.84 yesterday, gaining for the first time this week. Online news portal Sohu jumped the most since May 20, while Qihoo, China’s second biggest search engine, slid for the first time in a week on concern its sale of convertible bonds will sink its stock value. Digital map provider AutoNavi Holdings Ltd. tumbled 14 percent, the most on record, on plans to offer free navigation applications.
Qihoo said last month that it’s in initial talks to buy Sohu’s Sogou search unit. The Beijing-based company sold $550 million of five-year convertible bonds, according to a statement yesterday. Proceeds of the sale will probably be used to fund Qihoo’s partial acquisition of Sogou, Hong Kong-based 86Research Ltd. said in a note to clients.
“Sohu’s share rally should be driven by a possible deal that it will sell stake in Sogou to Qihoo,” Henry Guo, an analyst at ABR Investment Strategy LLC, said by phone from San Francisco. “With the bond sale, Qihoo’s existing share value will be diluted.”
The iShares China Large-Cap ETF (FXI:US), the largest Chinese exchange-traded fund in the U.S., slipped 0.2 percent to a one-week low of $34.99. The S&P 500 Index added 0.3 percent as energy shares rallied.
Sohu, a Beijing-based online news portal, advanced 4.6 percent to $63.40, the highest price since May 20. Chief Executive Officer Charles Zhang said in May the company was seeking strategic investment for its Sogou search unit to compete with Baidu Inc. (BIDU:US) for Internet users and advertising.
Qihoo’s American depositary receipts dropped to $77.88, after a five-day rally sent the shares to a record $79.26. The company is offering convertible notes due in September 2018 that carry an annual interest rate of 2.5 percent, and investors have the option to convert the bonds to shares of Qihoo before the maturity date, it said.
The issuance will dilute the value of existing shareholders by at least 4 percent, according to ABR’s Guo.
Qihoo’s Chief Financial Officer Alex Xu declined to comment on the status of talks with Sohu in an Aug. 27 interview in Beijing.
Cnooc Ltd. (883), China’s biggest offshore oil explorer, jumped 3.8 percent to a six-week high of $202.68. The ADRs, each representing 100 underlying shares in the Beijing-based company, traded 1 percent above its Hong Kong stock, the biggest premium in a week.
Oil futures rose 1 percent to a two-year high in New York and Brent climbed to a six-month high in London on concern mounting tension between the U.S. and Syria will threaten oil supplies from the Middle East.
AutoNavi, which provides digital map content to companies from Sina Corp. to Apple Inc., plunged to $12.54, the biggest decline since its U.S. listing in July 2010.
The company said yesterday it will offer free premium navigation apps for Apple and Android smartphones in China, seeking to deepen the penetration of its mobile products. Alibaba Group Holding Ltd., China’s biggest e-commerce company invested $294 million in AutoNavi in May for a 28 percent stake.
The free offering will reduce AutoNavi’s revenue, while contribution from Alibaba’s acquisition won’t boost sales until the second half of next year, according to Andy Yeung, a New York-based analyst at Oppenheimer & Co.
Second-quarter profit dropped to $3.8 million from $8.8 million a year earlier while sales also declined, Beijing-based AutoNavi said yesterday in a statement.
The Hang Seng China Enterprises Index (HSCEI) tumbled 2.2 percent to 9,765.19. The Shanghai Composite Index slipped 0.1 percent to 2,101.30, falling the first time this week.
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