Sole Man

Chinese IPO Luster Fades in Frankfurt

Ultrasonic DAX
China's Ultrasonic IPO in Frankfurt in 2011 was a disaster.
  • Why it matters

    Why it matters

    Sports-shoe sole manufacturer Fenghua had a flat footed  IPO on Germany’s stock market last Friday. This was due in some part to the company’s lack of transparent financial data, but also its association with a string of recent scandals involving Chinese firms that went public.

  • Facts


    • Fenghua originally sought to raise €14.4 million, but settled for just €600,000 when the stock went public on Friday.
    • Stock market watchdogs warn potential investors about Fenghua because it’s difficult to get a clear picture of the company’s overall financial health.
    • The company insists it operates transparently and follows strict guidelines.
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Wall Street gets Jack Ma and Alibaba. Germany gets Weijie Lin and his shoe soles.

In the U.S., the Chinese e-commerce company Alibaba launched the largest initial public offering in history this September. Fenghua Sole Tech, the second-largest sports shoe sole manufacturer in China, has followed suit in Frankfurt. Both companies would rather downplay the fact that there is now an embarrassing history of Chinese firms listing in Germany and promptly imploding, costing German investors losing millions in the process.

For example, the chief executive officer of Youbisheng Green Paper, a company traded publicly on the Frankfurt Stock Exchange, disappeared without a trace in July, while the financial chief officer was chased off the plant’s grounds and the company declared bankruptcy. Things were not any better at Ultrasonic, an urban footwear company. The CEO disappeared  – along with all the cash in the company’s coffers – while assuring people by telephone that he was planning to return to the company. There is still no trace of the money. Even when avoiding such spectacular failures, Chinese stocks bring little joy to investors. Most of the stocks on the Frankfurt exchange have been losers.

None of this scares Fenghua.

The company originally sought to raise €14.4 million ($18.27 million), but on Friday offered only €600,000 in stock with 64 percent sold to private investors. Mr. Lin, chief executive officer at Fenghua, wants to use most of the capital raised to add additional capacity to his shoe sole factory. The figures in Fenghua’s IPO prospectus show a healthy €38 million in liquidity while, in the first half of 2014, reported revenues from operations were €11.5 million.

This puzzles Daniel Bauer of the German Association for the Protection of Capital Investors (SdK). Why would Fenghua want to tap fresh capital on the German stock exchange when business is supposedly so profitable? “As a businessman, I would borrow from a Chinese bank to finance growth, instead of going on the stock market miles away,” Mr. Bauer said.

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