Shares of China's top videogame company Shanda Games Ltd fell 14 percent on Friday in one of the worst trading debuts of the year, the latest indication that while the IPO market may be recovering, investors are still selective.
Analysts faulted Shanda's decision to substantially raise the size of its initial public offering earlier this week for the decline, saying the oversupply of shares put pressure on the price.
Shanda Games was one of seven U.S.-listed IPOs this week, the busiest in nearly two years, but only lithium-ion battery maker A123 Systems Inc soared, jumping 50.3 percent in its first day.
Two of the week's other IPOs were essentially flat, including hospital operator Select Medical Holdings Corp which also started trading Friday. Another two, by mortgage REITs, fell even after being downsized.
Shanda Games, which completed the first billion-dollar U.S. IPO in 17 months, closed the day at $10.75 on Nasdaq.
The company, carved out of China media company Shanda Interactive Entertainment Ltd, had priced its American Depositary Shares for $12.50 each and sold 83.5 million ADRs.
Shanda Games increased the number of shares for sale on Wednesday by a third, which harmed the stock, an analyst said.
They took as much cash as they could today, but by increasing the size (of the IPO) they created a supply and demand issue, said Francis Gaskins, president of research firm IPO Desktop.
Shanda Games produces Legend of Mir -- a popular multi-player online role-playing game -- and operates Aion in China.
It competes with NetEase and Tencent Holdings in China's increasingly competitive gaming landscape, as well as Changyou.com Ltd, a videogames company also spun off from a Chinese company, Internet portal Sohu.com Inc, earlier this year.
SHANDA VS CHANGYOU.COM
Despite its strong IPO, some analysts had questioned whether Shanda Games would fare as well as Changyou.com, whose shares more than doubled since its debut on Nasdaq in April.
Do we have clear visibility this year of this company? Will the two games still grow at the same pace? ... I don't think so, said Credit Suisse analyst Wallace Cheung.
Changyou.com, which raised $120 million in its IPO, is the top-performing U.S.-listed IPO this year.
The IPO from Shanda Games is a bid to capitalize on China's red-hot online game market, the world's largest and fastest-growing with more than 50 million gamers.
Industry revenue is expected to rise 30 to 50 percent this year to between 24 billion yuan and 27 billion yuan ($3.5 billion and $3.9 billion), according to the Chinese government.
Shanda Games had earlier this week raised the number of shares in the offering by 32.5 percent. Its parent sold the majority of the shares in the IPO, leaving Shanda Games with about 15.5 percent of proceeds.
Shanda Interactive still holds shares representing 96 percent of voting rights.
The deal capped the busiest U.S. IPO week in nearly two years, with seven deals that raised $2.95 billion.
Goldman Sachs Asia and JP Morgan managed the IPO.
(Additional writing by Melanie Lee; Editing by Anshuman Daga, Dave Zimmerman, Gary Hill)