Are all the good deals from abroad?: Overseas firms tap U.S. markets

In the first half of 2000, about 30% of new equity issues were for foreign companies. Telecom had its share, seeing the debut of service providers and equipment vendors alike.

But the quirky aftermarket performance of these stocks and recent new listings raise an interesting question: Is an Internet portal or a wireless data provider a better investment because it's in an underpenetrated market such as Latin America?

Consider GSM provider China Unicom, which produced the largest Asian IPO outside of Japan when it raised $4.9 billion in its June offering on the New York Stock Exchange. The shares were 3.5 times oversubscribed by institutional investors. The company's American depository shares opened at $22 and have remained relatively stable (see table).

Underwriters Morgan Stanley Dean Witter and China International Capital even exercised the "greenshoe" option and sold an additional 369 million shares, boosting total proceeds to about $5.6 billion.

But the demand for China Unicom seems driven by the fact that it's a wireless play, not that it serves the largest population in the world. Its success has done little for countrymen Chinadotcom, Netease, SINA.com and Sohu.com. These Chinese Internet portals have tanked on the U.S. markets since their IPOs, despite projections from Salomon Smith Barney that the number of Internet users in China will mushroom from 7.2 million in 2000 to 44.2 million in 2005.

"Wireless is hot all around the world, and portals are cold all around the world," said George Nichols, IPO analyst at Morningstar.com.

Even in Russia, a country that until recently hadn't produced a New York Stock Exchange listing since 1998, wireless is king. In June, Russia's Mobile TeleSystems raised $323 million through an offering of 15 million American depository shares at $21.50 per share. The shares recently traded at $26 each. Mobile TeleSystems is 49% owned by DeTeMobil, a subsidiary of Deutsche Telekom. Mobile TeleSystems boasted profits of $85 million in 1999.

Conversely, international flavor hasn't overcome investors' distaste for Internet stocks. The closely watched IPO of America Online Latin America, a jointventure between AOL and Venezuelan media behemoth Cisneros Group, is another good litmus test. Although the company is officially based in Fort Lauderdale, Fla., its customer base is in Mexico, Brazil and other parts of South America.

On Aug. 1, underwriter Salomon Smith Barney cut the price range of the 25 million share IPO from $15-$17 to $8-$10 because of lack of interest from institutional investors. It's no wonder: Latin American Internet stocks such as StarMedia Network and El Sitio have taken a beating since March.

In addition, AOL-LA is a fresh fish in a market well stocked with big name competitors, including Telefonos de Mexico, Universo Online and Terra Networks.

The service had about 129,000 subscribers in Brazil as of June 25 - most of them on a free trial period, however. And the company's financials are abysmal. For the nine months ended March 31, AOL-LA recorded a net loss of $51.2 million on only $5.2 million of revenue.

"This is a weak IPO on several fronts," Nichols said. "Market sentiment for Latin American Internet stocks has dropped off sharply, and the company itself is playing catch up in the space. Once the trial period ends, [AOL-LA] is going to lose a lot of subscribers."

On the other hand, if an overseas company is in a market sector that is embraced by investors, it bodes well for the IPO - even if the individual company's financials aren't sterling. For example, Israeli fixed wireless infrastructure plays Floware Wireless and Giganet got a warm welcome from Wall Street, as did their U.S. counterparts such as Triton Network Systems.

Despite being a 3-year-old access equipment company with only $3.3 million in revenue in 1999 and losses of $9.4 million, Floware rose quickly from its $13 offering price on Aug. 2 and recently traded at $18.75.

The vendor, which develops a point-to-multipoint wireless access system called WALKair, raised $58.5 million through the sale of 4.5 million shares. Two days later, Tel-Aviv, Israel-based Giganet priced its IPO $3 above the high end of its range, selling 5 million shares for $85 million. On its first day of trading, the stock climbed as high as 40% above the offering price.

Giganet's FibeAir product set is designed to operate across multiple licensed frequencies and provide high-speed access up to 155 Mb/s.

"In the fixed wireless space, this is the expectation year," said James Mendelson, senior analyst at The Strategis Group, referring to the deluge of IPOs in the space. "What's been holding back the market is the equipment. Now that the equipment's here, people want to get in on the ground floor." And that notion holds true regardless of geography.