As we all know, there are many private equity firms in the world constantly look for investing in substantially undervalued companies by partnering with major shareholders to take these companies private. In many cases, even though management declines the offer from the private equity firms, management still announces the offer to show a "floor" of the company's fair value.
In XIN's case, in the past years, there was no news announced regarding offers from private equity firms. We may assume that there is just no offer existing, given management has incentives to show these offers. Many private equity firms have much higher risk appetite than hedge funds or mutual funds do. If there is no even high risk appetite private equity firms willing to buy XIN, we have to accept the high probability that XIN's risk adjusted value is not any higher than the current share price.
We are living in a world that many investors (retail investors, hedge funds, mutual funds, private equity funds, etc.) fight to find undervalued companies. It is hard to imagine why XIN still does not draw enough institution investor interest after almost three years.
I agree privatization is one of the ways to lose money at current valuations. I disagree there is any danger of a private equity/investment/hedge/micro cap/whatever fund of doing the transaction. Some very good funds have started down that road with XIN and abandon it. To take the same risk others have abandon is not a common Wall Street behavior.
In addition at the current valuation, there is no reason to need a partner in privatizing. Yong can walk across the street to ICBC sign some papers and do it himself. Why share the pie when you are totally capable of eating it all yourself at the same risk level?
The other real risk is a tender. Some competitor will look at the valuation and determine they can buy ready-made risk-free profits using the company as leverage. Good bye XIN.
@casey, there's no risk of a tender offer that the CEO's not also in favor of.
His personal 40% ownership is more than enough to single handedly block any offer he doesn't like.
Since we'd get the same price he gets for his shares, a tender offer that he DID like would probably be good news, indeed.
What we should ask ourselves is why XIN hasn't walked across the street to ICBC to take XIN private yet and why no competitor has tried to make this risk-free profits yet.
When you mentioned many funds have contacted XIN about the privatization, where do you get the information from? If it is from Tom Gurnee's conversation, we shall not take it seriously. I talked to Tom before, and he vaguely told me several PEs contacted him about it last year. I wondered why the company prefers spreading the rumors by its CFO to announcing the offers it received publicly.
I agree there probably haven't been any unannounced buyout offers.
Reader: I'm about to offer one possible explanation for that, but you must promise to read the last paragraph, as well, so I'm not later held responsible for views that might cost you money. Since the CEO holds a controlling interest in XIN, any buyout requires his cooperation. It's therefore possible that if he screams "NO WAY, NO HOW, NEVER" loud and often enough, it could discourage VC firms from looking at XIN who might otherwise be interested.
However, my strong recommendation is NOT to read any happy motives into a Chinese CEO except the self benefitting profit motive that drives us all. I've recently had the unpleasant experience of watching a lot of people lose money on ZSTN and CMED(Q) boards because they believed their CEO's loved them, and/or loved being a US listing, and/or loved access to the US capital markets, and/or were restrained by mystical eastern notions of honor and face that would prevent them from stealing their companies and taking them private. Unfortunately, their story's ending badly.