Chinese IPOs in U.S. to recover, but not too soon

Chinese companies will return to the U.S. stock market despite a sharp decline of initial public offering (IPO) activities in recent months, but the recovery may not begin until the second quarter of next year, according to market analysts.

Only one Chinese company -- VIP Shop -- went public in the U.S. in the first half of 2012. At the same time, at least 12 Chinese stocks announced plans to buy back their shares from the market amid plunging share prices.

The bleak outlook was in contrast to the "Chinese concept stocks" frenzy in 2010 -- 46 Chinese companies went public in the U.S. in that single year. But since 2011, 33 companies had begun to take themselves private. Fourteen have pulled out from the market so far, according to ChinaVenture Investment Consulting Group and other consulting firms.

The value of the listed Chinese companies were being underestimated and many of these companies could not see any benefit of overseas listing, according to Wang Ran, CEO of China eCapital Corporation, a Chinese investment bank.

"The low valuation had affected the company's financing plans, the morale of the management, and made us rethink whether it was worthwhile to stay on the market for such high costs," Yang Tianfu, chairman of Harbin Tech. Full Electric CO., Ltd, told reporters. The former U.S.-listed electric motor maker went private in 2001 amid fraud scandals alleged by short sellers.

Scott Cutler, executive vice president of NYSE Euronext, told Xinhua Thursday in Beijing that the significant decline of Chinese IPOs has a lot to do with general trust and confidence in the financial market and confidence in the companies' own financial statements.

"Unfortunately, the mistakes or fraud by a very few number of companies has impacted the perceptions that the investors have on all companies from China."

Cutler, also a co-head of U.S. Listings and Cash Execution at NYSE Euronext, said the only way that the companies are able to restore that trust and confidence is by being more transparent, and more communicative with the market.

But he also admitted that U.S. regulators also need to do a lot more, to be able to address some of the challenges faced by reports published by some research firms that may or may not be based on true statements.

"There are also reports published by research firms that are very difficult to prove," Cutler said.

There are about 100 companies listed from China that have a combined capitalization of more than 1 trillion U.S. Dollars.

"I think trust and confidence can only be rebuilt with time," Cutler said. "I don't own a crystal ball, but I guess it would be faster than we expect, but not as fast as we want."

He said most industry participants now look at the second quarter of 2013 as the potential time for that window to open again.

Defending the attractiveness of the American stock markets, Cutler said the U.S. was number one in terms of global capital raised for IPO -- or 33 billion U.S. dollars -- so far this year, and the U.S. is the only market that is raising significant IPOs.

Feng Bo, an analyst with ChinaVenture, said though more listed Chinese companies might go private, the rapidly-growing Chinese Internet companies are expected to stay on the U.S. Market.

"For most Internet firms, their businesses are robust, their turnovers good, and share prices expected to rebound. I don't see them having too much motive to go private," Feng said.

Li Ling, also with ChinaVenture, said as the Chinese economy continues to grow, Chinese stocks remain a good choice for American investors. And stricter scrutiny toward companies to go public in the U.S. will help rebuild the investors' trust and confidence.

Li said a successful IPO by a strong and credible Chinese company in the near future will definitely help bring the recovery of Chinese IPOs in the U.S. back on track.

"We have a deep set of companies that are looking to access the market and waiting for that window," Culter added. "It is a solid pipeline of companies from innovative industries, and notably, companies that are growing rapidly and represent very compelling investment opportunities."