Chinese Companies Head For the Exit
BY NEIL GOUGH
HONG KONG–Fed up with slumping share prices, prickly regulators and aggressive short sellers, an increasing number of Chinese companies listed on American stock exchanges are heading for the exits.
The most recent case is also the biggest yet. On Wednesday, the directors of Focus Media Holdings, a display advertising company based in Shanghai, whose shares had come under attack by short-sellers, said they had accepted a sweetened $3.7 billion privatization bid from a buyout group that included the American private equity giant Carlyle Group, several Chinese private equity firms and the company’s chairman.
The deal would delist the company from Nasdaq. It includes $1.5 billion in debt financing from a consortium of Wall Street banks and mainly state-owned Chinese lenders and would rank as China’s biggest-ever leveraged buyout. Pending shareholders’ approval, the company expects the transaction to close in the second quarter of next year.
Including the Focus Media deal, which was first announced in August, Chinese companies began a record $5.8 billion worth of privatization bids in the first nine months of the year, according to the data provider Dealogic. That was a 42 percent increase from the same period a year earlier, and proposed Chinese delistings accounted for a record 16 percent of such transactions globally during the period, up from 6 percent a year earlier.
‘‘A lot of Chinese entrepreneurs want out of the U.S. markets. Share prices are depressed, and there are a lot of these deals in the pipeline,’’ said David Brown, greater China private equity practice leader at the auditing firm PricewaterhouseCoopers.
Valuations of companies from China that are listed in the United States have come under pressure in recent years after a wave of allegations of fraud and other accounting scandals. The Securities and Exchange Commission has deregistered the securities of nearly 50 China-based companies and has filed about 40 related fraud cases.
At the same time, a cross-border regulatory dispute over auditing procedures for Chinese companies listed in the United States escalated this month, when the S.E.C. charged the Chinese affiliates of the world’s four biggest accounting companies with violating securities law for failing to turn over documents related to their auditing work on businesses in China.
The standoff between United States and Chinese regulators over the auditing issue has raised concerns among multinational corporations that operate in both countries.
‘‘Failure to reach an agreement will create regulatory dead zones that harm investors and businesses,’’ the United States Chamber of Commerce said last week in a letter to securities regulators in Beijing and Washington. ‘‘The threat of retaliatory actions by regulators, on both sides of the Pacific, may create a regulatory protectionism that will harm both economies.’’
I would not accepty $7 a share. I would need at least $12. If $7 is all they offer, I would want to be part of the private equity takeover.
The problem with TRIT is basically the build-transfer model that adopted. Unfortunately, that's what Chinese municipalities demanded. TRIT was undercapitalized for such a model. Besides that, the payment terms were too generous. Hence, the huge accounts receivable. In the US, a company could sell its accounts receivable, at a discount of course, but in China, I don't know if that's possible. At least with the India project, it's pay as you go.