Crisis-Hit China Firms Gain Banking Ally 国开行贷款助中国概念股私有化
It seems that short sellers aren’t the only ones trying to make some quick money from the confidence crisis plaguing US-listed Chinese stocks, with word that state-owned lender China Development Bank (CDB) is also trying to capitalize on the situation by providing loans to help some companies privatize. If true, the reports would just mark the latest twist in a saga that started more than a year ago when short sellers began to expose a series of accounting scandals at US-listed Chinese firms, sparking a sell-off in their shares. CDB’s move may also auger the start of a bigger wave of privatizations that could see some big US- and Hong Kong-listed companies go private as well.
Effects of the confidence crisis that began last year are still being felt throughout the sector, including investigations by the US securities regulator, the de-listing of a wide range of companies and the filing of numerous lawsuits by shareholders who lost huge sums of money when shares of many companies plummted. Another by-product of the crisis has been the voluntary privatization and de-listing of several healthy companies that believed their shares were undervalued, with online entertainment firm Shanda Interactive and B2B e-commerce leader Alibaba.com both de-listing their shares this year.
China Development Bank actually helped to finance the Alibaba.com privatization, and now looks like it wants to try and make some money by providing funds to other healthy firms that might be considering similar moves. According to media reports, CDB, a government policy lender that wants to behave more like a commercial bank, is making more than $1 billion in funds available for overseas-listed Chinese companies that might be considering future privatization. (English article; Chinese article)
The reports list 2 smaller companies, Fushi Copperweld (Nasdaq: FSIN), and TransInfo Technology (Nasdaq: CTFO), as both tapping CDB for funds to help their current plans to de-list, and say other companies could follow with similar financing. Interestingly, this kind of plan fits nicely with CDB’s dual aims of lending based on both government policy and also commercial factors.
On the government side, Beijing indicated after the accounting scandals began that it would like to have more oversight over these entrepreneurial companies that have listed overseas, mostly in the US and Hong Kong. So helping them to privatize and eventually re-list in China would help to achieve that goal. At the same time, banks have lost many of their traditional lending channels in the past year as the economy slows and Beijing tries to cool the country’s overheated property market. Thus this kind of lending for privatization, while relatively small, still represents a new, relatively low-risk channel for new lending as the other traditional channels slow down.
In fact, I wouldn’t be surprised to see some of China’s other big lenders, especially more outward-looking ones like ICBC (HKEx: 1398; Shanghai: 601398) and Bank of China (HKEx: 3988; Shanghai: 601988), both launch their own the privatization finance initiatives in the months ahead as they too look for new business amid the broader banking slowdown. As that happens, look for not only small firms like Copperweld to privatize, but perhaps 1 or 2 big names as well like some of the major alternate energy companies like Suntech (NYSE: STP).
Bottom line: The entry of a major Chinese bank into privatization financing for overseas-listed US Chinese firms could auger a new wave of de-listings in the coming months.
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