Regulatory changes may cause second thoughts by overseas-listed Chinese firms
Internet company Qihoo 360 Technology Co said Thursday that its planned privatization from the New York Stock Exchange is on track, following media reports said that it may have hit a roadblock with Chinese authorities.
Qihoo 360, which announced a $9.3 billion privatization deal involving a consortium including Ping An Insurance (Group) Co and Sequoia Capital China in December 2015, has been told by the State Administration of Foreign Exchange (SAFE) that it cannot move the related funds offshore in a single transaction, Bloomberg reported Thursday, citing sources.
In a statement sent to the Global Times Thursday, Qihoo 360 said that the privatization is going smoothly and it is "untrue" that it has any differences with the SAFE over how to move the funds offshore.
CITIC Guoan Information Industry Co, a member of the consortium for Qihoo 360's privatization, also said in a filing on the Shenzhen bourse late Thursday that it is pushing forward the company's privatization accordingly.
The US capital market used to be the first choice for Chinese Internet start-ups that wanted a listing. But driven by the high valuations in the Chinese mainland stock markets, many overseas-listed companies have announced plans to go private and then seek listings domestically.
Since the beginning of 2015, more than 40 US-listed Chinese companies have announced plans to go private, media reports said.
But to conclude these deals, some $500 billion worth of yuan needs to be converted, Yin Zhongli, an expert at the Chinese Academy of Social Sciences, was quoted as saying by the Guangzhou-based newspaper 21st Century Business Herald on Wednesday.
Capital flows involving these deals may increase the depreciation pressure on the yuan in the short term, which may have been the reason why the SAFE has reportedly increased scrutiny in this regard, according to Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology.
Regulatory risks don't only come from the foreign exchange regulator. Recent media reports said that the China Securities Regulatory Commission (CSRC) may also curb plans by overseas-listed Chinese companies to list on mainland exchanges.
As many companies now listed overseas are seeking to conduct so-called "backdoor" listings by acquiring already listed shell companies in the mainland market, some analysts have worried that such listings, which usually entail high valuations, will drain capital from the market and cause volatility.
To acquire a shell company is the "fastest and the most convenient path" for such overseas-listed companies to get listed in China, said Zhang Yi, CEO of Guangzhou-based consultancy iiMedia Research.
In a response to the recent media reports on the potential curbs, the CSRC said at a press briefing on May 6 that it "will launch an in-depth analysis" of overseas-listed companies' plans to be listed in China via IPOs and mergers.
Following the news, the shares in major US-listed Chinese companies, such as Internet company YY Inc and Momo Inc, have tumbled this week.
Shifting listings from overseas exchanges to China will be tough in many cases, analysts said, and only a few companies have finished the process so far.
"Such regulatory changes may surely cause some US-listed companies to have second thoughts" about such plans, Zhang told the Global Times Thursday.
Reuters reported Thursday that leading mainland developer Dalian Wanda Group is reconsidering the plan to take its Hong Kong-listed property arm private, a move the company announced in April, unnerved by "greater scrutiny of China listings and uncertainty over whether shareholders will approve the offer price."
Despite the wave of overseas-listed companies moving to the mainland, Dong noted that such moves are "shortsighted."
"In the long run, being listed on a mature capital market benefits the company's management and internationalization, while listing on the mainland capital markets won't help much in this regard," Dong told the Global Times Thursday.
