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Xinyuan Real Estate Co., Ltd. Message Board

  • doncassel4 doncassel4 Aug 28, 2013 2:02 PM Flag

    I'm not much for talking heads,


    but SA makes some good points:
    Assuming the convertible notes are fully converted, TPG will hold about 20% Xinyuan's total share capital. That is a nice deal for TPG - the common shares were issued at $5.48/share, while the stock book value is $12/share, and Xinyuan already has plenty of cash on its balance sheet. However, this is a must-do deal for Xinyuan. For too long has Xinyuan lacked a big-stake big-name institutional backer, and as a result, everyone thought it must be a lemon and investors have abandoned it. No more.
    It is expensive to do an in-depth due diligence, and for smaller companies, it may not be worth the effort. Before TPG made its $109 million investment, it had to go through the whole process - cash audits, site visits, accounting books check, independent verification, off-balance sheet financing check, management background check, private investigation, etc. Especially given that how sensitive institutional investors are these days, a lot of precautions have to be taken to safeguard TPG's interest.

    Some estimate that the whole in-depth due diligence can cost $3 million to $5 million, including labor, consultant expenses, corporate investigator expenses, independent auditing fees, background check fees, etc. Some even estimate the total cost can be more than $7 million. So previously, no hedge funds wanted to spend the money and brain damage to do the deep due diligence, and instead they waited for a leader to emerge to spend the money and effort. TPG has emerged, and the bridge is built. Shrewd institutional investors will follow suit to rely upon the confidence of the lead backer, and ride on TPG's coattails.

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