IPOs: China Needs IPO Roadmap For Returning Companies
Bottom line: China’s securities regulator should work with overseas-listed Chinese firms to chart a well-defined path for them to return home to list, to encourage such movement and avoid burdensome bureaucracy.
A growing trend that is seeing Chinese firms abandon US listings to return home gained big momentum last week, when 2 more companies announced plans to de-list from New York and a third that privatized 2 years ago moved close to a China re-listing.
In the first category, medical devices maker Mindray Medical (NYSE: MR) announced a management led buy-out offer late in the week, which was followed a day later by a similar offer for solar panel maker JA Solar (Nasdaq: JASO). Meantime, formerly New York-listed outdoor advertising specialist Focus Media took a major step toward becoming the first Chinese company to re-list at home by injecting itself to an existing Shenzhen-traded company.
Such moves would have been unthinkable just a year ago when some of China’s top technology names like Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) continued to list in New York. The fledgling migration marks a big vote of confidence in China’s stock markets, and is being drive partly by a huge rally that has seen the Shanghai composite index more than double over the last 12 months.
But the homecoming so far has been marked by uncertainty and delays, since there was no formal path for such a movement before Focus Media. To speed the process, China’s securities regulator should get more involved in charting a concrete road map for such re-listings to welcome these companies to come home from New York or Hong Kong.
The privatization trend dates back at least 3 years, fueled by New York-listed Chinese firms whose shares had languished due to lackluster growth prospects and waning interest from US investors. But the trend has gained major momentum in recent months, as many companies look enviously at huge gains being notched by many of their peers during the China stock market rallies.
In the last 2 months alone, companies launching new privatization bids in New York includes education specialist Xueda (NYSE: XUE), children’s website Taomee (NYSE: TAOM), online dating site Jiayuan (Nasdaq: DATE), gaming specialists China Mobile Games (Nasdaq: CGME) and Sungy Mobile (Nasdaq: GOMO) and drug maker Wuxi PharmaTech (NYSE: WX).
The list gained a new member last week when a group made a buyout bid for Mindray Medical, offering a 9 percent premium for the company’s American Depositary Shares (ADSs). (previous post) A day later JA Solar received a similar bid at $9.69 per ADS, marking a 20 percent premium to their last close. (company announcement)
JA Solar is typical of the New York experience for many of these privatizing firms. It made a New York IPO in 2007, selling its ADSs for $15 each. Its stock soared as high as $125 in the 2 years after that, amid strong hopes for the solar power industry and big investor interest in the China growth story. But the shares later crashed as the company’s growth prospects dimmed and investors lost interest.
Focus Media was a similar superstar after its New York listing in 2005, but also fell out of favor later and was privatized 2 years ago. The company pursued a plan to re-list at home, and moved one step closer to that goal with last week’s announcement that it had injected itself into Shenzhen-listed Hongda Building Materials (Shenzhen: 002211). That backdoor listing plan valued Focus at about 45.7 billion yuan ($7.4 billion), or about double what it was worth at the time of its New York de-listing.
Focus’ move will undoubtedly be welcome by the growing list of others to recently privatize, as it represents a potential path for them to re-list at sharply higher values than what they were receiving in New York. But the Focus plan has taken more than 2 years to execute due to the lack of a clear path and precedent for such a move.
The China Securities Regulatory Commission (CSRC) has been busy these days approving a raft of new IPOs and implementing regulatory reforms to make China’s stock markets more efficient and transparent. But it should also find time on its busy agenda to work more closely with these privatized companies to create a well-defined and transparent path for them to come home to re-list.
Steps could include helping these overseas orphans identify targets for similar backdoor listings, or even creating a new path for them to make expedited IPOs. It should also clearly state what administrative and accounting steps are necessary for such moves. Such steps would make some of these entrepreneurial companies more quickly available to local investors, and could also help to stabilize the homecoming trend even if China’s current stock market rally stalls and investor enthusiasm cools.
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