Chinese firms cash in on online boom

China's thirst for messaging has driven the current boom

An unexpected and partly unexplained boom in share prices has left once-gloomy Chinese internet firms awash with cash.

Between them, China's three leading online portals - Sina.com, NetEase.com and Sohu.com - have announced plans to raise $290m (£177m) in fresh financing.

The cash injection has been made possible by their surging share prices, which have risen by multiples of up to 25-fold in the past 12 months.

The New York Nasdaq stock market, on which all three firms are listed, has risen only slightly over the same period.

But not all investors are certain that commercial fundamentals are sufficient to justify such strong share valuations.

Cashing in

NetEase on Wednesday became the latest of the trio to announce it was raising money, laying out plans for a convertible bond issue of up to $100m.

Sohu launched a similar deal on Tuesday, while Sina's bond plans were unveiled late last month.

The three firms are keen to cash in on the current buoyant mood among investors, bolstering their balance sheets in the hope of prolonging their good fortune.

Analysts speculate that all three could now be looking at acquisitions, as the most promising way to deliver strong continued growth.

On message

A year ago, the firms' shares were in the doldrums, as investors reacted to global hi-tech gloom.

More specifically, there were fears that the Chinese internet sector, once seen as extraordinarily promising, may not deliver the sort of growth rates some had predicted in the late 1990s.

Since the end of last year, however, the mood has turned dramatically positive.

This is mainly the result of bullish predictions on demand for paid messaging services, especially the popular SMS facility the three portals offer.

Traffic through the portals has jumped in recent months, at least partly because the deadly Sars virus persuaded many Chinese to stay at home, and advertising revenues have benefited as a result.

Ups and downs

Some analysts scent a speculative bubble, however.

The firms are generating positive results: Sohu on Tuesday announced a healthy profit, after making losses in 2002.

But improvements in the fundamental position are seen as insufficient to explain the sheer scale of share-price increases.

Sohu shares are valued at the equivalent of 868 years' earnings, for example, compared with 31 years for Microsoft, the Nasdaq's biggest listed company.