E-House Dusts Off Leju for New IPO

After an unsuccessful earlier listing for one of its subsidiaries, online real estate giant E-House (NYSE: EJ  ) is preparing to try again with plans for a New York IPO for its Leju unit. The company has been quite cagey in this latest listing plan, giving little details about Leju's background and why the unit deserves its own separate listing. Perhaps that's because a little checking reveals that this "new" offering is really just a recycled listing for a previous company jointly owned by E-House and leading web portal Sina.

All this raises the bigger issue of a decidedly checkered history for this kind of move, which sees Chinese Internet companies spin off their smaller individual units for separate listings. In theory, this kind of spin-off is a good idea as it creates more "pure play" choices for investors, since big companies like Tencent and Alibaba often have many different businesses in their portfolio. But the reality is often quite different, and history has shown that these spin-off IPOs seldom do well.

All that said, let's return to the present where E-House says it has made its first filing with the US securities regulator for a Leju IPO on either the New York Stock Exchange or the Nasdaq. The whole situation is still very preliminary, as E-House says it hasn't decided how big the offering might be. The only additional information it gives is to say it will remain Leju's majority shareholder after the offering.

Testing the market
It's clear from the announcement that this initial move isn't a public filing and that E-House is voluntarily announcing the plan to test market reaction. The company's shares rose 3.6% after the announcement came out, and were up another 2.6% in after-hours trade, indicating investors were interested and that E-House is likely to move forward with the offering.

But it's also noteworthy pointing out that investors have been interested in just about any Chinese Internet IPO these days, and this positive reaction is most likely more a reflection of that reality than any real excitement about Leju. That said, let's take a look at why this offering doesn't look all that exciting.

There's a reason that Leju is a separate site from E-House's main website. That's because the site used to be jointly owned by E-House and Sina, and was part of their CRIC joint venture. CRIC was publicly listed on the Nasdaq for nearly 3 years from 2009 to 2012, but its shares never did very well and E-House ultimately ended up buying out the company in a deal that saw CRIC privatize and its shares de-list.

More broadly speaking, this kind of spin-off really does have a dismal track record among Chinese Internet companies. Two of the biggest proponents of this technique have been Shanda Interactive and Sohu.com, both of which spun off and listed several units, including their online games. But in the end, none of those performed very well, and Shanda is even in the process of privatizing its main spin-off, its online game unit Shanda Games.

All of that negative history certainly doesn't bode well for a separate Leju listing. What's more, this latest plan looks like a veiled way to recycle an old listing using a new name to hide the fact that the old listing didn't do well. If the old listing didn't do well, there's no reason to believe a new one will perform any better. Perhaps an offer could get a short-term bounce due to the current positive investor environment for China Internet stocks, but it's unlikely to maintain any gains over the longer term.

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