Banking & Finance

Li lets rip

Why DangDang’s CEO thought Morgan Stanley did a poor job on IPO

Li: unsatisfied customer

Perhaps DangDang – often described as China’s Amazon.com – should be interviewing Eminem to head up its investor relations, or adding a parental advisory to its press releases?

The suggestion follows a (rather enjoyable) spat last month between senior executives at the online book retailer and Morgan Stanley, the bank that underwrote its IPO last December.

The issue, DangDang’s chairman Peggy Yu explained to China Business News, was disappointment at how the IPO had been handled. But her husband Li Guoqing (also DangDang’s chief executive) had already offered Morgan Stanley a much more direct critique, promising to “f**k all of you up after this drama is over”.

Li’s promise was part of a longer diatribe penned in mid-January, following the December sale of $272 million of shares in the offer, including $56 million sold by Li and other existing shareholders.

Of course, a lot of nonsense is talked nowadays about feedback and using it to improve performance. But no one at Morgan Stanley would have expected to get their own review via a Sina weibo (a Chinese Twitter equivalent), in rap-style format and with so many expletives.

Zhu Weiyi, a professor at China University of Political Science and Law, agrees that it was a “very creative” way of making a point. Not for Li the courts or even the mainstream media, Zhu told the Shanghai Securities News. But, by posting his opinions online, his critique soon spread like wildfire.

The gripe was that bankers pitched for the mandate on the basis of a much higher valuation, but then pulled back in the aftermath of North Korea’s shelling of a South Korean island (Li’s rhyming rant claimed “the little rats” gave a valuation of up to $6 billion to win the business but DangDang ended up with a market cap of $1.1 billion on debut).

When DangDang then asked to boost the price, it claims it was warned it might lose orders and should stick to $16. But on IPO day the stock soared close to $30. Company executives were shocked and dismayed. Li’s weibo also says that when the stock opened, his own CFO was so terrified he wanted to “pee in his pants”.

Morgan Stanley ranked top in underwriting Chinese IPOs in the US last year, with 10 of 34 transactions, says Southern Weekend. DangDang paid the investment bank an underwriting fee of almost 7%.

Li’s complaints feed into wider suspicions that Chinese firms risk being bullied on Wall Street, reported 21CN Business Herald.

DangDang boss Yu agrees that Chinese companies are new to stock listings in the US, with only a decade or so experience of going public. “Our local entrepreneurs need to learn not just technology and management”, she warns, “but also the know-how to win the game in the capital market”.

DangDang has now received a written apology from Morgan Stanley, reports CBN, but given the chance again, Yu says she would opt for the Dutch auction style of fundraising used by Google in its 2004 listing.

In the meantime, husband Li seems to be keeping his own counsel, after becoming embroiled in follow up exchanges with two individuals purporting to be Morgan Stanley employees (the bank issued a statement denying it). True to form, he shot from the hip. “You foreign flunky,” Li wrote to one of them, “take some Viagra when you have time and do some real work.”

DangDang later issued a statement saying Li’s rap lyrics had been “fictional” but that it had been wrong to use coarse language. “But Li Guoqing’s style has always been outspoken,” Yu clarified helpfully to CBN.

In the American bank’s defence, Chinese dotcom IPOs have a tendency to rocket on their first day. For example, Youku.com did an IPO the same week as DangDang, and rose an even higher 161%.


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