22 April 2019

Forgame’s success to inspire peers to beat a path to HKEx door

Investors across Hong Kong and mainland China are taking avid interest in online-game counters after popular webgame developer Forgame Holdings Ltd. (00484.HK) made a stellar debut on the Hong Kong bourse Thursday.

Forgame’s IPO was more than 300 times oversubscribed and its shares surged more than 36 percent above the offer price on the first day of trading, before closing with a gain of 32.5 percent. The sizzling new listing, meanwhile, throws renewed spotlight as to why the firm had to come to Hong Kong in the first place for its capital market foray, instead of getting listed at home.

On the face of it, Forgame appears to be just another Chinese company that was forced to seek an overseas floatation due to the continuing freeze by mainland regulators on new listings in China.

That, however, is just part of the story. The more fundamental factor at play is the relatively lengthy and rigorous due diligence and approval procedures that may render game developers’ odds of gaining the nod for listings in China almost nil.

For online gaming firms, their IPO filings are not only reviewed by the stock market watchdog — the China Securities Regulatory Commission — but also the Ministry of Industry and Information Technology as well as the government departments that supervise cultural affairs.

Analysts tell the 21 Century Business Herald that even if Forgame and its peers try their luck with ChiNext, China’s second board market, they may still be vetoed on grounds of financial risks and intellectual property infringement.

Certainly they have other options, such as following internet giants like Baidu (BIDU.US) into the US bourses. But such initiatives may still run into obstacles, as regulators in the US also tend to cherry-pick listing candidates. It is said that the annual net profit threshold for gaming companies has been raised to US$50 million, making it difficult for many Chinese firms to qualify. Forgame, for instance, booked net earnings of only 240 million yuan (US$39 million) last year, despite already being the most profitable webgame developer in China.

So HKEx is probably the only bourse that will welcome game developers with open arms. Forgame’s roaring debut will certainly inspire more peers to jump onto the “let’s go to Hong Kong” bandwagon. Boyaa Interactive, SnailGame, and Gamewave are reportedly some of the potential IPO candidates.

– Contact the writer at [email protected]


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