China.com Reportedly Mulling Hong Kong Sell-Off

Asian Internet service provider and portal China.com (Nasdaq: CHINA) is eyeing the possibility of selling its Hong Kong unit in an effort to raise $1 billion (US$), according to reports published yesterday.

The flagship Chinese Internet firm — which is owned by state-run Xinhua News Agency and boasts America Online, Sun Microsystems and others as equity investors — would list its Hong Kong unit as a public offering in that city’s exchange by the end of the year.

The report comes at a time when interest in Internet-related stocks in Hong Kong is currently running high. Published reports also speculated that China.com might instead acquire an existing listed company to float a new offering.

If China.com follows through on the proposed moves, it would be its second major public offering in six months. In June, China.com obtained a Nasdaq listing in an initial public offering that raised $89 million. Since then, its stock has fluctuated, hampered by reports that the Chinese government intends to curtail foreign investment in Internet ventures.

There have been no firm indications from the Chinese government as yet that it will implement a foreign ban. Ironically, in the rather surreal world of Chinese politics and business, state-run Xinhua is the company’s majority-owner and would be most adversely affected by any such move.

A Heavyweight Battle

China.com is currently standing toe-to-toe with Sina.com. Backed by Japanese Internet investor Softbank and investment banker Goldman Sachs, the company is considered more of a true portal than China.com, an ISP that offers some content and e-mail capabilities on its sites in China, Taiwan and Hong Kong.

The two companies are competing for a miniscule Chinese Internet audience that is currently estimated to stand at seven million out of a population of 1.2 billion. However, International Data Corp. (IDC) predicts that the number will rise to 16 million by 2003, a healthy increase in most statistical circles, but anemic in the red-hot Internet market.

Another factor that weighs against China’s Internet industry is that most users tend to be educational and corporate clients, with home surfers accounting for an estimated 10 percent.

Still, the payoff could be huge down the road, and China.com, Sina.com and others are hoping to rake in a majority of the estimated $350 million that will be spent in an online ads in China by 2001.