HONG KONG (Reuters Breakingviews) - The creator of “Fantasy Westward Journey” has embarked on a compelling trip eastward. Chinese video-game producer NetEase, which made its debut on the Nasdaq 20 years ago, is preparing to raise $2.6 billion in Hong Kong. The secondary listing closer to home should help fortify it against global disarray.
Rule relaxations a couple of years ago made it easier for Chinese companies trading in New York to sell shares in the former British territory, too. Alibaba blazed the trail in November. After initially delaying its plans, the e-commerce titan overcame anti-government protests that were roiling the city to raise $13 billion.
That is an indication of how the stars are aligning for NetEase and boss William Lei Ding. Originally founded as an internet portal in 1997, its pandemic-friendly business model has proven resilient by keeping quarantined gamers busy playing self-developed titles and licenced ones such as “World of Warcraft”. Game sales increased 14% in the first quarter from a year earlier to 13.5 billion yuan ($1.9 billion). Revenue from its Youdao online education business more than doubled.
The success has powered a roughly 50% rise in NetEase’s market value, to $51 billion, since mid-March. That performance defies a backlash which has prompted U.S. lawmakers to seek to delist Chinese companies from American bourses if they don’t comply with domestic accounting oversight.
A Hong Kong listing provides an extra layer of protection. Alibaba’s success on the venue provides an encouraging sign, too. Its American depositary receipts have been converting to Hong Kong shares at a healthy clip, according to an analysis of Hong Kong Exchanges and Clearing data. The stock price is up 15% since the new listing and got an extra pop last month when the creator of the benchmark Hang Seng index said it was rewriting its rules to allow dual-listed companies to be included. Despite all the upheaval in the world, NetEase seems to be moving from an unlikely position of strength.
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