Cloudary halts IPO as Goldman, Temasek enter

The company, which is controlled by Shanda Interactive Entertainment (SIE), filed to listing on the New York Stock Exchange in May 2011, targeting a $200 million. There have been no subsequent filings since Goldman was replaced as lead underwriter in June 2012. 

"Cloudary kicked off its IPO preparations at an unexpectedly poor time," Robert Chiu, chairman of Cloudary and president of SIE, tells AVCJ. "We expected the accounting scandals [irregularities were exposed at several US-listed Chinese firms from the second half of 2011] would only last a few months.However, the market environment has been so unfriendly towards us. US investor appetite hasn't recovered and it's been tough for Chinese companies."

Three months ago, Cloudary's management decided to sell a minority stake, attracting 30 bidders. Goldman and Temasek emerged victorious but the valuation - $110 million for around 20% - is lower than the previous round last year, when Orbis entities committed $15 million for a 1.875% stake.

Although there will be no IPO in the near future, it remains a long-term goal. "That's one of the reasons why we opened ourselves up to institutional investors to become our shareholders and join our board," Chiu says. "Goldman's participation should help us a lot on our IPO plan."

Founded in 2004, Cloudary is a community of six original literature sites. With two million authors, it has become one of the largest content providers for China's leading mobile operators. Readers' subscription fees are the main source for the revenue, with other income coming from online advertising and copyright licensing. Books and other publications are also sold offline.

Cloudary recorded net losses from 2009 to 2011, but Chiu says the company turned profitable last year, thanks to wireless subscribers and copyright licensing.

SIE was taken private in early 2012 and Chiu implies there are no plans to re-list. This does, however, open up a channel for its subsidiaries to go public. Aside from Shanda Games, which already trades on NASDAQ, Shanda operates music, video, social networking platforms.

Interestingly, Chiu's involvement with Cloudary began with the company's IPO preparations. He was working for Bank of America Merrill Lynch, which shared the underwriting mandate with Goldman, and was impressed by the company's growth potential. Chiu quit his job and went to see Tianqiao Chen, SIE's founder.

"I had raised a single-purpose fund from former clients and wanted to become a shareholder of Cloudary," he says. "In the end, Chen did not take the money but persuaded me to join the company."

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• Topics
• Technology
• Greater China
• TMT
• Goldman Sachs
• Temasek Holdings