Some Chinese companies listed on the US stock exchanges have not lost their appetite for going private despite the continuing turmoil in China's stock market.
China's Xueda Education Group on Monday said it would buy shares it doesn't already own at $5.50 per American depositary share, higher than the buyout group's earlier offer of $3.38 per ADS. Xueda will delist from the New York Stock Exchange and plans to become a listed company in Shenzhen by the end of the year.
Before China's stock market started slumping in June, several US-listed Chinese firms were either mulling or preparing to go back to the domestic equity market through privatization to take advantage of soaring valuations in the mainland. Earlier this month, Chinese video streaming website operator YY Inc and online retailer China Dangdang Inc said they had received buyout proposals.
Peter Halesworth, founder and portfolio manager of Heng Ren Investments in Boston, said that the selloff in China will prod company managers, who are usually the bidders, to have second thoughts.
"Originally, managements were aiming to delist and then have an IPO in China to reap higher valuations in Shanghai or Shenzhen. That outlook has become clouded. But after the drops in Chinese markets, a new option has emerged－managements are taking advantage of the poor sentiment to buy back the company at these temporarily low prices at the expense of small shareholders," he told China Daily.
Halesworth cited Dangdang as one example. Dangdang CEO Li Guoqing and Chairwoman Peggy Yu offered $7.812 in cash per ADS for the company, or 18 percent below the stock's 30-day average of $9.55 according to Bloomberg.
"Its proposal is seen as an opportunistic move by management to squeeze out small shareholders and regain full control of the company at a low price driven down by temporary emotion and fear," Halesworth said of the offer. "A fair price needs to be paid to shareholders－especially a premium for control. On average this premium for control is 28.4 percent in the US. The buyout proposals by Chinese bidders since March have an average premium of 15 percent."
Halesworth said that delisting from a US exchange is "a reasonable option for a Chinese company if it has no ambition to expand internationally, if they are changing their business model, they are a microcap, trade very little, and have no analyst coverage and few investors".
"The US stock markets are not for all companies in China or the US or any country. These markets are the deepest and most competitive capital markets in the world. Not every company can be led by a Jack Ma and be Alibaba.com," he said.
The market downturn may eliminate a big reason why Chinese companies were going back to relist in China. "The key rationale of the whole delisting and relisting is the valuation discrepancy between the two markets," analyst Henry Guo of Summit Research Partners said in an online report by Fortune. Guo said that since Chinese stocks have crashed "China investors have become more and more cautious on valuation".
