VC-backed Chinese lottery site files for $150m US IPO
VC-backed Chinese sports lottery provider 500.com has made an initial filing to raise around $150 million through an IPO on the New York Stock Exchange.
According to a regulatory filing, a vehicle controlled by Vision Knight Capital invested in $20 million of exchangeable notes that entitle it to an equity stake in 500.com upon completion of the IPO. There will also be a concurrent private placement of shares to Sequoia Capital, which subscribed to a $20 million convertible note issued by the company.
Previous VC investors in 500.com include IDG-Accel China Growth Fund, which is managed by IDG Capital Partners, and Susquehanna Asia Investment. Their holdings were redeemed by the company between 2010 and 2012.
500.com claims to be China's leading online sports lottery platform, operating under the 500wan brand. It is one of two companies authorized by the Ministry of Finance to provide online lottery sales services on behalf of the China Sports Lottery Administration Center. It previously offered sports and welfare lottery products but ceased on operations in the latter category last year following a regulatory review.
500.com had 18.4 million registered user accounts - of which 800,000 were active accounts - as of September 30. Total purchases for the period came to RMB2 billion ($322.8 million), up from RMB1.8 billion in 2010, although spending has fallen from its peak of RMB2.5 billion in 2011 due to the withdrawal of welfare lottery products.
The company posted net revenues of RMB171.5 million in 2012, down 26.2% year-on-year. Net income fell 68.7% to RMB4.2 million. However, performance in the first nine months of 2013 has been strong, with revenues reaching RMB163.4 million and net income RMB20.6 million.
First launched in 1987, China's regulated lottery industry has seen substantial growth, with products on offer expanding from weekly draw lotto games to include high frequency games, scratch cards, video lottery terminals and virtual sports betting. The proceeds generated by the welfare and sports lottery arms have been used to finance social welfare programs and build community sports facilities.
There remains a significant amount of illegal gaming in China and the expansion of the state-sanctioned lottery channels is intended to draw some of this activity into the regulated framework.
Total lottery sales amounted to RMB261.5 billion in 2012, up from RMB166.3 billion in 2010. According to consultancy iResearch, the industry is on course to be worth RMB450.3 billion by 2015. Sales of online spots lottery products came to RMB6.2 billion last year.
500.com is one of several Chinese companies currently pursuing US listings. Other include online marketplace 58.com and travel website Qunar. Last month, Montage Technology Group raised $71 million through a NASDAQ offering, becoming only the second Chinese company to go public on a US bourse this year after online retailer LightInTheBox.
Deutsche Bank is managing the 500.com offering.
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