IPOs: Focus Media Changes Course, Renaissance Eyes Buyouts
Bottom line: Focus Media will re-list with a high valuation on a new enterprise-style board set to launch in Shanghai next year, while China Renaissance’s new fund to help US-listed firms privatize will attract strong investor interest.
A couple of items are in the news involving the recent buyout wave for US-listed Chinese companies, which are rapidly abandoning New York in search of higher valuations in their home market. In an abrupt and somewhat surprising shift, Focus Media, one of the first companies in this homecoming wave, is reportedly abandoning its original plan for Shanghai.
The second item has China Renaissance, a well-respected domestic private equity firm, preparing to raise a major new fund that will help to finance privatizations of Chinese firms from New York. This particular deal looks significant, since many of the nearly 3 dozens firms to announce privatization plans this year could soon need new funding if previous commitments collapse due to recent volatility in China’s domestic stock markets.
We’ll begin with Focus Media, which has been a trail-blazer in the current wave of homecomings by US-listed Chinese firms. Use of the word “homecoming” to describe the phenomenon isn’t completely accurate, since none of the firms to de-list from New York have actually re-listed in China yet due to the complexity of the process.
Focus de-listed back in 2012, and had lined up a Shenzhen-listed shell company called Hongda New Materials (Shenzhen: 002211) to host its re-listing in China. But that plan has run into numerous headaches, including reports last month saying Hongda’s chairman had quit and shares held by the company’s controlling stakeholder were frozen amid an ongoing probe by the Chinese securities regulator. (previous post)
Perhaps all those headaches convinced Focus to abandon Hongda as a listing vehicle, and now the latest reports say the company is eying an IPO instead on the strategic emerging industries board being planned for Shanghai. (Chinese article) The board could launch as early as next April, and looks like Shanghai’s attempt to match the success of the 5-year-old Nasdaq-style ChiNext board in Shenzhen.
Chasing Big Names
The Shanghai stock exchange would certainly like to attract some high-profile names to populate this new board for its launch, and Focus, as one of China’s leading outdoor advertising firms, seems to fit that description. Earlier this month separate reports emerged that the new board was also pursuing other high-profile names, including Baidu-backed (Nasdaq: BIDU) online video site iQiyi and Alipay owner Ant Financial. (previous post)
The new Shanghai board could become a fertile ground for new IPOs by other US-listed Chinese firms returning home, which may be a motivating factor behind the latest fund-raising plan by China Renaissance. That plan has China Renaissance aiming to raise 5 billion yuan ($800 million), with about half of that earmarked for funding privatizations of New York-listed Chinese firms. (Chinese article) That would be more than enough to fund buyouts of smaller firms like Vimicro (Nasdaq: VIMC) and China Information Technology (Nasdaq: CNIT), whose shares have tanked over concerns their recent buyout offers could collapse due to China’s stock market volatility.
This particular move looks quite shrewd for China Renaissance, since it’s quite a professional and reputable private equity firm that should easily be able to sell the homecoming story to potential investors. I expect China Renaissance will have no problem raising all the necessary money for this fund. After that, it could move quickly to support many of the smaller and mid-sized privatizing companies whose original funding sources may be in danger of collapse.
