CEO of CDC Corp Peter Yip in August 1999, just after the company had got listed on NASDAQ. Photo: AFP

On October 27, the NASDAQ stock exchange announced that trading in CDC Corp, the first Chinese Internet company to float on the US exchange, would be suspended, starting from October 28.

The company had applied for bankruptcy protection on October 5. By close of trading that day, its share price had plummeted more than 50 percent to $0.42.

The company's fall and its possible delisting have drawn great public attention.

"It will be hard for the company to find a way out in the short term. It seems that to delist from the US stock exchange might be its only choice," Feng Po, an analyst with ChinaVenture Investment Consulting Group, told the Global Times.

Rapid rise

Founded in 1997, the firm went public on NASDAQ in July 1999, years before competitors like Sina, Sohu, and Netease.

The company's news portal enjoys the benefit of an impressive domain name - china.com - and its stock code on NASDAQ was CHINA during its 12 years on the exchange. CDC's share price surged to $220.31 in 2000, giving the company a market valuation of more than $5 billion.

But its market value now is just $14.77 million. At the end of June, CDC reported total debts of more than $250 million, accounting for over 60 percent of the company's total assets.

The last straw was a lawsuit brought against CDC by US-based hedge-fund investor Evolution Capital Management. CDC was ordered in September to pay $65.4 million for breach of contract.

Analysts said that the Hong Kong-based company came to this point because of its loss of focus and its unsuccessful and aimless expansion and diversification.

"CDC Corp was among the first group of companies that tapped into the Chinese Internet Industry in the 1990s, but now it lags far behind its competitors like Sina and Sohu," said You Tianyu, an Internet industry analyst with consulting firm iResearch.

In a major restructuring in 2006, the company divided itself into four parts: CDC Software, CDC Global Services, CDC Games, and China.com. But "none of them has grown well," said You.

You said the lack of a strong core business was the major reason behind the company's bankruptcy. "But instead of developing one, it has put too much effort into capital operation like mergers and acquisitions."

CDC Software raised $57.6 million in its IPO on NASDAQ in 2009, but spent most of the funds on an acquisition spree last year, buying 16 companies.

"The whole business structure is not showing any sign of growth potential. I am afraid it has lost its charm with investors," said Feng from ChinaVenture.

Troubled China stocks

"China concept stocks have been suffering since the second quarter, after a series of accounting scandals and possible risks with the VIE (Variable Interest Entity) model," said Feng.

Most Chinese Internet companies have used the VIE model to gain overseas listings, by first registering a shell company overseas and then seeking a listing for it.

But there were fears of a crackdown in September, when the Chinese government announced that it was considering tightening regulations for domestic firms seeking overseas listings, and that it would take a closer look at the VIE model in particular.

"The accounting scandals and the potential risks in the VIE model have made American investors more cautious toward Chinese stocks," said Zhong Rixin, a US stock analyst at financial service provider imeigu.com.

Since the beginning of this year, 26 Chinese companies have delisted from US stock exchanges.

Under NASDAQ rules, if the share price of a company remains under one dollar for 30 consecutive trading days, they will get a warning. If the company fails to boost the price above one dollar in 90 days after the warning, then the company will be forced to delist from the exchange.

Currently the share prices of more than 20 Chinese companies listed on NASDAQ are lower than one dollar. The share price of China CGame Inc, an online gaming company, has been under one dollar for more than three months.

There are also companies who leave the US stock exchanges voluntarily.

Shanda Interactive Entertainment, which operates online games in China, announced on October 17 that its Chairman Chen Tianqiao was planning to buy out all publicly traded shares on NASDAQ to take the company private.

The firm said that it would buy back the publicly traded shares for $41.35 each in cash, and media reports said the company is likely to seek a listing on the Shanghai Stock Exchange.

Still wanted

The last few months have been forbidding for domestic companies seeking a public offering in the US.

In the third quarter, only one Chinese company - online video website tudou.com - floated in the US. It raised $174 million, far lower than the $233 million raised by its competitor youku.com in December last year.

Xunlei Networking Technology Co, Cloudary Holdings and online clothing retailer Vancl have postponed their overseas IPO plans, citing highly unfavorable market conditions.

But ChinaVenture's Feng sounded a note of optimism. "Internet companies are still preferred by most US investors, and these companies also need to get listed in the US so as to raise funds for future development."

There are also still plenty of Chinese companies eyeing a US listing. Online recruitment site zhaopin.com is planning to float in the US by the end of the year, and group-buying website lashou.com announced last week that it is planning to raise $100 million with a public offering on NASDAQ.