Archive for May, 2016

China ADR Buyouts: Beijing May Limit Reverse Mergers, Cap Valuation Multiples – Asia Stocks to Watch – Barrons.com

The China Securities Regulatory Commission is weighing possible restrictions on reverse mergers, including capping valuation multiples for deals involving companies that previously traded overseas, according to the people. Another option being discussed is introducing a quota to limit the number of reverse mergers each year from companies formerly listed on a foreign bourse, the people said. Chinese regulators are concerned the valuations mooted for some domestic backdoor listings are too high and could affect the stability of the stock market, the people said.  The government also wants to avoid encouraging more buyouts that could prompt a wave of fund outflows and increase depreciation pressure on the yuan, the people said.

Overnight, the KraneShares CSI China Internet ETF (KWEB) tumbled 4.1% after Chinese media rumored that the China Securities Regulatory Commission was considering restrictions on ADRs using reverse mergers to speed list in mainland China. It is never wise to be too clever.

Overnight, Qihoo 360 (QIHU) tumbled 11.3%, 21Vianet (VNET) dropped 24%, YY (YY) retreated 13.8%, Momo (MOMO) dropped 15.8%, Dangdang (DANG) was down 13.3%. All have planned to de-list in the US.

For privatization deals that have already reached definitive agreement stage, CSRC approval for relisting is not needed for the privatization to complete. I wrote an article about that in relation to QIHU here: http://seekingalpha.com/instablog/6797361-vie-buyer/4881010-misinterpreted-news-leads-100-percent-annualized-return-potential-qihu

On a related note, The Street called YY 5% recovery a dead cat bounce. Very prescient, today YY are down 9%. Altogether about 30% down from a week ago. Seems like even China doesn’t want all this trash back…

 


 

China to Mull Curbs on Domestic Backdoor Listing Valuations – Bloomberg

’s stock regulator is considering measures to curb the flow of overseas-traded Chinese companies seeking backdoor listings in the domestic equity market, people with knowledge of the matter said. 

The China Securities Regulatory Commission is weighing possible restrictions on reverse , including capping valuation multiples for deals involving companies that previously traded overseas, according to the people. Another option being discussed is introducing a quota to limit the number of reverse mergers each year from companies formerly listed on a foreign bourse, the people said, asking not to be identified as the information is private.

Chinese regulators are concerned the valuations mooted for some domestic backdoor listings are too high and could affect the stability of the stock market, the people said.  The government also wants to avoid encouraging more buyouts that could prompt a wave of fund outflows and increase depreciation pressure on the yuan, the people said.

At least 47 U.S.-traded Chinese companies have received buyout offers totaling $42.6 billion since the start of last year, lured by the prospect of relisting at a higher valuation in Shanghai or Shenzhen, data compiled by Bloomberg show. Any new regulations could affect companies like U.S.-listed security software maker Qihoo 360 Technology Co., whose $9.3 billion buyout is still pending after it signed a definitive deal agreement in December. 

“The A-share market has not stabilized yet, and the government is worried that the return of companies with stronger brand names will suck in a lot of liquidity from smaller companies,” Ronald Wan, chief executive officer of Partners Capital International in Hong Kong, said by phone Tuesday. “They are very cautious and sensitive to anything that will affect stability in the market at the moment.”

 


 

China Going-Private Targets Extend Selloff on Deal Scrutiny – Bloomberg

U.S.-traded Chinese companies that are seeking to move their listings to the mainland tumbled for a third day as speculation mounted that the Chinese regulator will move to prevent the deals from going through.

The American depositary receipts of Momo Inc., the Chinese dating app, fell 16 percent to $12.27, the most since its initial public offering in 2014. YY Inc. extended a 3-day decline to 22 percent, the most on record since its 2012 debut. Qihoo 360 Technology Co., whose $9.3 billion go-private bid is the biggest among Chinese ADRs. plunged 11 percent. The Bloomberg China-U.S. Equity Index fell 3.6 percent.

The declines came after the nation’s securities regulator signaled Friday that the trend of delisting in the U.S. to sell shares in the mainland at higher valuations would come under greater scrutiny. At local exchanges, companies seen as vehicles for re-listing plunged for a second day on Monday.

“A lot of U.S. investors don’t believe the privatization will occur,” said Brad Gastwirth, San Francisco-based chief executive officer of ABR Investment Strategy, which invests in U.S.-listed Chinese companies. “It’s tough to say all of these deals will go through. But in this environment, people sell first and ask questions later.”

The China Securities Regulatory Commission said on Friday it’s conducting “in-depth” analysis of how companies returning to Chinese exchanges via initial public offerings or mergers and acquisitions would impact the stock market. In a March report, Haitong Securities Co. listed small capitalization and low return-on-equity and debt as among the key criteria for selecting a shell company.

 


 

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