VanceInfo Technologies Inc. shares surged more than 15 percent in their first day of trading Wednesday after the Chinese offshore software developer's initial public offering of American Depositary Shares priced at the midpoint of expectations.
VanceInfo's IPO of 7.65 million ADS priced at $8.50 per ADS. The stock jumped $1.35, or 15.9 percent, to $9.85 in afternoon trading. After opening at $9.50, the shares have traded between $8.70 and $10 during the session.
According to Securities and Exchange Commission filings, VanceInfo expected the IPO to price between $7.50 and $9.50 per ADS. Each ADS represents one ordinary share.
VanceInfo, a Cayman Islands company with executive offices in Beijing, provides clients research and development services, enterprise products, application development and maintenance, and quality assurance and testing. It primarily serves corporations headquartered in the U.S., Europe, Japan and China.
Scott Sweet, the managing director of research firm IPO Boutique, said the offering points to a new front in the outsourcing market. Sweet said China's size and educated populace could pose a viable challenge to India in the multibillion-dollar outsourcing industry.
Xinyuan Real Estate Co., which develops real estate in China, also gained on Wednesday after its IPO priced within expectations. The strong debuts of VanceInfo and Xinyuan follow a disappointing offering by another China-based company, ChinaEdu Corp., on Tuesday. ChinaEdu, which provides educational services in China, dropped 20 percent in its first day of trading after pricing at the low end of expectations.
VanceInfo plans to use the proceeds from its portion of the IPO for general corporate purposes, including capital expenditures, such as establishing new offices and for funding possible acquisitions.
As of Sept. 30, the company's 187 clients included Citibank, Hewlett-Packard Co., IBM Corp., Microsoft Corp., Motorola Inc. and Tibco Software Inc. Microsoft and International Business Machines Corp., VanceInfo's top two clients, accounted for 41 percent of its revenue in the first half of the year, according to the filing.
Chris Shuning Chen co-founded VanceInfo in 1995 and serves as its chairman and chief executive. Chen previously worked as a senior software developer at Great Wall Computer Software & System Co., where he participated in the development of the IBM OS/2 operating system.
For the six months ended June 30, VanceInfo reported earnings of $3.2 million, after paying preferred dividends, compared with $1.4 million in the first half of 2006. During the same period, the company's revenue grew to $25.4 million, from $11.1 million in the prior-year period.
Citi and Merrill Lynch & Co. served as the IPO's lead underwriters. Jefferies & Co. and Susquehanna Financial Group also served as underwriters. The underwriters have an option to buy up to about 1.1 million additional ADS to cover any overallotments.
VanceInfo's ADS trade on the New York Stock Exchange under the symbol "VIT."
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