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Shanda spins off video games unit in $800m IPO

(China Daily/Reuters)
Updated: 2009-09-05 07:41

Shanda Games had revenues of $321.9 million for the first six months of the year. [Bloomberg]

Chinese technology company Shanda Interactive Entertainment is planning to spin off its video games unit and raise as much as $800 million in an initial public offering (IPO) in the United States, looking to follow its rival Sohu.com.

The unit, Shanda Games Ltd, plans to list shares on the NASDAQ, according to a prospectus filed on Thursday.

Shanda Games has produced popular Chinese video games such as The World of Legend. In April it launched the multi-player online role-playing game AION in China after licensing it from South Korea's NCSoft Corp.

Shanda is the No 1 company in China's fast-growing online gaming business, a market that analysts say is increasingly attracting investor interest.

"Investors are looking for growth stories and growth is not happening in US gaming names," said ThinkEquity analyst Atul Bagga.

Chinese online gaming companies are increasing their revenues by 40 percent to 50 percent a year and boast healthy margins, Bagga said.

In April, Chinese Internet portal Sohu.com took its gaming unit Changyou.com Ltd public in a $138 million IPO on the NASDAQ.

Changyou.com shares are 138.3 percent above their IPO price, making the deal the strongest performing IPO of 2009.

Hou Tian, an analyst with Pali Research, said that online, multiplayer games are particularly well suited to China, which has the world's largest Internet population.

"If you look at Chinese Internet user growth, the biggest pull for a regular teenager or young kid to become an Internet user is games and other forms of entertainment," said Hou.

Large, deep-pocketed companies such as Shanda enjoy an advantage in the market by acquiring smaller game titles and distributing them on their infrastructure, Hou said.

"The bigger the successful game company becomes, the higher the barrier to entry becomes," she said.

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As of Aug 31, 2009, Shanda Games operated 18 multiplayer role playing games and 11 advanced casual games, with 16 more role playing games and eight advanced casual games in its development pipeline.

The prospectus for Shanda Games did not indicate when the IPO might be priced or whether it would include shares in addition to those being sold by Shanda Interactive.

Shanda Games had revenues of $321.9 million for the six months ending June 30, with net income of $99.6 million, according to the filing.

Shanda Games had about 9.7 million active paying accounts for the three-month period ending June 30, according to its prospectus.

Shanda Games has applied to list its American depositary shares on the NASDAQ under the symbol "GAME".

The IPO's lead underwriters will be Goldman Sachs (Asia) LLC and JP Morgan.