Concept stocks' departure from U.S. will likely lead to re-listing in China, analysts say
Chinese video streaming website operator YY Inc and online retailer E-Commerce China Dangdang Inc have become the latest in a string of U.S.-listed Chinese companies to get offers to be taken private, moves that analysts on Sunday said will likely lead to listings on China's A-share market.
Chairman Lei Jun and Chief Executive Li Xueling offered to take YY private in a deal valuing it at about $3.69 billion, while E-Commerce China CEO Li Guoqing and Chairwoman Yu Yu offered $7.812 per American depositary share for the online book and media retailer.
U.S.-listed Chinese shares have taken a beating in recent weeks in tandem with a slump in China's domestic stock markets.
These companies are choosing to go private mostly because U.S.-listed Chinese "concept stocks" are not performing as well as their counterparts in the Chinese mainland, despite the recent turmoil in the A-share market, Zhang Yi, CEO of Guangzhou-based market research firm iiMedia Research, told the Global Times on Sunday.
"More and more Chinese companies that listed in the U.S. will return to China," he said.
About 30 percent has been knocked off the value of Chinese A shares since mid-June. Meanwhile, E-Commerce China and YY had fallen 36.1 percent and 21.6 percent, respectively, between June 25 and the privatization offers.
"The two stocks got hammered over the past several sessions, so I think management believes the price is low, so they are taking this opportunity to offer a private proposal," Summit Research analyst Henry Guo told Reuters.
A string of Chinese tech firms have received proposals to drop their U.S. listings and go private after Premier Li Keqiang encouraged overseas-listed companies to shift to China as part of a plan to promote domestic listings.
Tech executives at several Chinese companies are betting on higher valuations at home and many also hope to avoid any legal fallout when the Chinese government formally outlaws foreign shareholder control of firms in protected tech sectors.
Zhang said that this is an opportune time for U.S.-listed Chinese tech firms to go private and then get re-listed in the A-share market.
"The shift will give investors who are unnerved by the current market turmoil a chance to liquidate their positions," he noted.
But Li Daxiao, director of Shenzhen-based Yingda Securities, said that the window of opportunity for the shift was some time ago, when China's stock market was stable.
Lei and Li's cash offer of $68.50 per American depositary share for YY is at a premium of 17.4 percent to the stock's close Wednesday. The company had 53.8 million outstanding American depositary shares as of March 31, according to Thomson Reuters data.
Li and Lei already own about 35.7 percent of YY's shares, representing about three-fourths of the aggregate voting power, the company said on Thursday.
The offer for E-Commerce China is at a 20 percent premium to its closing price Wednesday. Li Guo-qing and Yu Yu already own about 35.9 percent of the company and control about 83.5 percent of the voting power.
After the offers, E-Commerce China's shares rose as much as 9.7 percent to $7.14 on the New York bourse, while YY's shares were up as much as 6.9 percent to $62.35 on the NASDAQ.
Both companies said they would form special committees to evaluate the offers.
