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…