Companies leaving overseas exchanges may face delays in China
Qihoo 360 Technology Co, which is delisting from the U.S. stock market, has denied published reports that the China Securities Regulatory Commission (CSRC) has set preconditions for a potential IPO in the Chinese mainland.
According to recent media reports, the CSRC has told the anti-virus software provider that if it wants to list on the mainland A-share market via a backdoor listing, its shareholders can't sell their stakes for six years.
A PR representative with Qihoo 360 told the Global Times on Sunday that these reports don't reflect the facts. However, the person declined to disclose the progress of the company's privatization and relisting plan.
On December 18, 2015, Qihoo 360 said in a press release that it was in the process of being taken private by a consortium in a deal valued at approximately $9.3 billion.
The best choice for technology companies such as Qihoo 360 is to get listed on the A-share market after privatization, Li Yi, a Beijing-based independent IT expert, told the Global Times on Sunday.
"U.S. investors frequently undervalue Chinese tech companies because they don't fully understand the companies' business models," said Li.
China's ChiNext Growth Board, a NASDAQ-style board for high-tech and emerging start-ups, boasts an average price-to-earnings ratio of 65, in comparison with 21 for the NASDAQ 100, according to data from Thomas Reuters on Friday.
Qihoo 360 is reportedly among some 20 U.S.-listed Chinese companies that intend to go private and list on the Chinese A-share market, where they expect to achieve higher valuations via backdoor listings.
For instance, the NASDAQ-listed game developer Shanda Games, which agreed to a buyout deal worth about $1.9 billion in November 2015, is likely to get listed on the A-share market in a backdoor listing through Ningxia Zhongyin Cashmere Co, which is listed in Shenzhen, South China's Guangdong Province, according to media reports.
Analysts said the backdoor listing aims to fast-track the companies' shift between stock exchanges amid regulatory uncertainties.
"It takes companies about two or three years to get listed on the A-share market via IPOs," a Beijing-based securities trader, who declined to be identified, told the Global Times Sunday.
In the past three years, there have been five Chinese companies that completed delistings from overseas stock markets and shifted to the mainland via mergers and restructuring, according to a Weibo post by the CSRC on Friday.
The trend has aroused concerns among experts.
"The presence of new companies [on mainland exchanges] may lead to problems, as the A-share market is in a major bubble," said Li, who said that the CSRC will delay any such listings.
The Beijing securities trader agreed with Li.
He added that the shift of these overseas-listed companies may also put pressure on to China's foreign exchange reserves, as those companies will have to pay investors in dollars, which would decreases the reserves and make the country vulnerable to global currency turbulence.
Zhang Xiaojun, a spokesman for the CSRC, said at a weekly briefing on Friday that the CSRC is studying the potential market impact of this trend.
The New Third Board, which has fewer regulatory hurdles, is expected to be another choice.
According to the Beijing trader, using this market will enable companies like Qihoo 360 to get listed sooner, but the valuations will be much lower than they could get on the A-share market.
