BUYOUTS: US Investors Punish Homebound China Orphans

Bottom line: As many as three-quarters of privatizing US-listed Chinese firms could see their buyout offers revoked, but many of their stocks may be oversold due to excessive investor worries during the latest trading session.

Orphan stocks look oversold after sell-off

What started as a wave of euphoria by US-listed Chinese firms looking to make some quick money by de-listing from New York and returning home is rapidly turning into chaos, with shares of many of those companies tumbling in the latest trading session. The fall is directly tied to China’s own rapidly crumbling stock markets, which was where most of these US orphans were hoping to re-list to get better valuations than they had in New York.

But now those plans have been thrown into doubt, and at least one analyst is joining my previous prediction that many of the record 27 companies to receive privatization offers this year could ultimately see those offers revoked. That means many of these companies may be forced to remain listed in the US, where they were punished by angry investors in the latest trading session. Continue reading

GUEST POST: Why Privatizing Chinese Stocks Have Become Hostages of the Moment

By Peter Halesworth

China companies homeward march looks shaky

China’s bubbly stock markets have percolated into US exchanges, helping to raise New York-listed Chinese stocks that are reawakening after years of neglect. The Nasdaq Golden Dragon China index (Nasdaq: HXC) is up approximately 70 percent since 2013.

Yet something odd is happening on the way to this bull market. Managements of many of these companies are deciding to de-list from the US to pursue new IPOs in China. Despite the positive signals, 21 companies have announced since March that they have received proposals to privatize and de-list from the US exchanges. Continue reading

IPOs: China’s IPO Freeze Misguided, Should End Quickly

Bottom line: China’s new IPO freeze to support its tumbling stock markets is ultimately a bad idea, signaling that Beijing will intervene in its financial markets to rescue irresponsible investors.

China freezes new IPOs

After several days of rumors, China’s securities regulator formally announced a temporary suspension of all IPOs over the weekend in a bid to halt a slide that has seen the main Shanghai index tumble nearly 30 percent over the past month. While such a step is understandable and may even help to calm the markets, it is ultimately misguided and should be allowed to quickly expire for a number of reasons.

A long-term freeze will hinder China’s drive to internationalize its markets, since it signifies that Beijing won’t let market forces prevail and instead will step in to rescue investors every time they spend their money irresponsibly. Such a long-term suspension would also create uncertainty for the many private firms that are some of China’s most dynamic companies, potentially cutting off a vital funding source just when they need it to fuel their rapid growth. Continue reading

News Digest: July 7, 2015

The following press releases and media reports about Chinese companies were carried on July 7. To view a full article or story, click on the link next to the headline.
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  • China ADRs Plunge Most Since 2011 as Support Fails to Stem Rout (English article)
  • Apple (Nasdaq: AAPL) Steals 60 Yuan Monthly Data Usage From iPhone Users – CCTV (Chinese article)
  • VNO Subscribers Reach 7.5 Mln, New Users Account for 41 Pct – MIIT (Chinese article)
  • Huayi Bros (Shenzhen: 300027) Plans to Spin Off, List Internet Entertainment Unit (Chinese article)
  • Meizu, Huawei, Coolpad (HKEx: 2369) Make Big Price Cuts to Take On Xiaomi (Chinese article)

FINANCE: New Investment Squashes Ant Financial Valuation

Bottom line: Ant Financial’s valuation looks low but reasonable based on its first major fund raising, and the figure is like to triple or more by the time it makes its domestic IPO in around the next 2 years.

Ant Financial gets low valuation in new funding

After months of negotiations, Alibaba (NYSE: BABA) affiliated financial services unit Ant Financial has finally closed its first major funding round as it revs up a campaign to challenge established state-run banks. But what most surprised me in the latest reports were the low valuation that Ant got from the funding, with the final figure coming in far below all of the earlier forecasts.

The moral of the story is that Ant Financial and other similar privately funded financial services companies still have big potential. But limitations that restrict such companies from seeking foreign investment are likely to limit their valuations, since only a small field of domestic Chinese institutional investors have big enough sums of money to finance high-growth companies like Ant. Continue reading

INTERNET: Baidu Throws Nuomi at Dianping, Meituan

Bottom line: Baidu’s spending blitz at Nuomi looks like a good but expensive strategy to help the company quickly pick up market share in the group buying space, and could pose a serious challenge to industry leaders Dianping and Meituan.

Baidu revs up spending at Nuomi

Internet giant Baidu (Nasdaq: BIDU) is making a major push into the group buying space, announcing a bold campaign that includes 20 billion yuan ($3.2 billion) in new spending as it aims to replicate its earliest success in online search. This particular campaign is focused on Baidu’s Nuomi group buying site that it purchased a year and a half ago, and has the site’s chief saying he aims to overtake industry leaders Dianping and Meituan in the next 1 year and 3 years, respectively.

This particular campaign surprised me a bit, as Baidu hasn’t really announced any major plans for Nuomi since buying the company from struggling social networking site Renren (NYSE: RENN) for more than $200 million. But this kind of move would be similar to what Baidu did with online travel site Qunar (Nasdaq: QUNR), which was already growing quickly when Baidu purchased a controlling stake in 2011. Since then, Qunar has made an IPO and Baidu has poured big money into the company, which is now posing a serious challenge to longtime industry leader Ctrip. (Nasdaq: CTRP) Continue reading

RETAIL: McDonald’s, KFC Go High-Tech in China With Customization, E-Payments

Bottom line: KFC’s and McDonald’s latest moves to add high-tech elements to their China stores are a savvy way to update their images, and could help to attract a younger trendy crowd that has abandoned both chains in recent years.

KFC links up with Alipay

Leading global fast food chains McDonald’s (NYSE: MCD) and KFC (NYSE: YUM) are both in the headlines as we head into the heart of summer, each trying new high-tech approaches to reignite their faltering China stories. Announcement of these latest initiatives seems especially appropriate right now, as we’re approaching the first anniversary of a food safety scandal that dealt a major blow to both chains in China.

KFC’s deal will see it pair up with Alibaba (NYSE: BABA) to offer its affiliated Alipay electronic payments service at hundreds of its China stores. The McDonald’s news is similarly high-tech, and will see the chain extend its new state-of-the-art hamburger customization program to the China market. Continue reading

News Digest: July 4-6, 2015

The following press releases and media reports about Chinese companies were carried on July 4-6. To view a full article or story, click on the link next to the headline.
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  • Ant Financial Raises 13 Bln Yuan in First Funding, Valued at 180 Bln Yuan (Chinese article)
  • Alibaba-backed (NYSE: BABA) Meizu Sells 8.9 Mln Smartphones in H1, Up 540 Pct (Chinese article)
  • Wanda Commercial Plans 12 Bln Yuan IPO as Stocks Tumble (English article)
  • STMicro (NYSE: STM) Signs $500 Mln Supply Deal With China’s Huawei (English article)
  • China Internet Elder Lee Kai-fu Suffers Cancer Relapse (Chinese article)

CELLPHONES: Xiaomi’s Growth Sputters

Bottom line: Xiaomi’s rapidly falling sales growth is the result of many factors that reflect its youth and inexperience, and the company should pause and return to its early strategy or risk seeing its slowdown accelerate.

Xiaomi sales growth slows further

Media are swarming to the latest sales figures from sputtering smartphone sensation Xiaomi, which has just announced first-half data that looks mediocre to downright bad, depending on how you look at it. The company is trying to put a positive spin on the data, saying its first-half sales rose 33 percent from a year earlier. But one media report points out the latest 6-month sales were actually down from the second half of 2014, marking the first-ever sequential decline for this rapidly sputtering smartphone superstar.

This latest data shouldn’t come as a huge surprise, but instead marks a continuation of a steady stream of signals that point to a rapid reversal of fortune for Xioami. I’ve previously said the company and its charismatic CEO Lei Jun are at least partly to blame for the negative publicity they are now receiving, since they built up huge expectations over the last 2 years through a non-stop series of lofty announcements and other high-profile publicity stunts. Continue reading

IPOs: New China Board Nets iQiyi, Ant Financial; Buyout Shares Sag

Bottom line: Shanghai will bid aggressively for Chinese tech firms to list on a new Nasdaq-style board planned for the city, while shares of companies privatizing from New York will continue to sag in sync with China’s stock market sell-off.

Soccer club eyes IPO on new Shanghai board

A new Shanghai-based Chinese board that aims to compete with Wall Street for new high-tech listings is moving closer to reality, with reports that Baidu’s (Nasdaq: BIDU) iQiyi online video service and Alibaba’s (NYSE: BABA) affiliated Ant Financial unit will be among the exchange’s inaugural listing candidates. A separate report also says that another Alibaba-affiliated company, soccer team Evergrande Taobao, will also list on the board, which is being referred to right now as the new strategic industries board.

Meantime in New York, the current week looks set to end with just a single privatization announcement for a US-listed Chinese firm, a sharp slowdown from the 20 earlier offers in the month of June. In this case the abrupt slowdown is at least partly due to the plunge in China’s stock markets this week, and we’re unlikely to see any more offers until the situation stabilizes. Continue reading

INTERNET: Xiaomi Boosts Xunlei Ties, Buyout Offer Coming?

Bottom line: Xunlei’s growing ties with Xiaomi could presage a buyout bid for the former by the latter, as Xiaomi seeks partners and acquisitions to help it realize its goal of building an ecosystem of Internet services and related devices.

Xiaomi, Xunlei launch Xingyu

A year-old alliance between smartphone sensation Xiaomi and online video operator Xunlei (Nasdaq: XNET) has entered a new phase, with news that the pair have formed a content distribution service. That plan, which will see the pair launch a new brand called Xingyu, is part of Xiaomi’s efforts to create an ecosystem of Internet-based services like online video for its smartphones and other devices like smart TVs and set-top boxes.

This latest move isn’t a big surprise, and comes after Xiaomi purchased 30 percent of Xunlei almost exactly a year ago at the time of Xunlei’s New York IPO that met with a cool reception. Xunlei’s shares have been quite volatile since then, losing almost half their value before rebounding over the last few months to return to their IPO level. But a recent wave of buy-out offers for many US-listed Chinese companies, combined with this growing alliance, is raising the interesting possibility that Xiaomi might soon lead a bid to privatize Xunlei or perhaps buy the company outright. Continue reading