Bottom line: A booming China stock market and IPO reforms could fuel a new wave of re-listings by Chinese tech and media firms that were formerly traded in New York, led by an upcoming backdoor listing by Focus Media.
A pair of stories in the headlines today are highlighting a nascent movement that could see a growing number of US-listed Chinese firms take down their shingle in New York to return to stock markets closer to home. No companies have made such a move yet, but advertising specialist Focus Media could soon become the first with word that it’s moving closer to making a backdoor listing in China after leaving New York in 2013.
Meantime in a related piece of news Xueda Education (NYSE: XUE) said it has received a buy-out offer from Chinese financial firm Insight Investment (Shenzhen: 000526). Such a move would continue a trend that has seen a growing number of neglected US-listed Chinese firms abandon New York, where their shares have stagnated over the last few years.
The latest reports point out that a number of factors could lead more US- and even Hong Kong-listed Chinese firms privatize and return to their home market. One of the main attractions has always been the awareness factor, since many of these firms are well known to Chinese but are unfamiliar to most westerners. A new element to the equation is a recent rally that has seen China’s stock markets double over the last 6 months. That’s probably creating envy among many US-listed Chinese firms whose shares have moved in the opposite direction over that time.
Last but not least is a major reform being planned for China’s stock markets that would see them move to a registration-based system for IPOs similar to the US. The current system is quite cumbersome and involves extensive vetting by the securities regulator, which tightly controls the number of new listings. The current system also strongly favors state-run firms, meaning many fast-growing venture-funded companies ultimate go overseas due to difficulty they would face in listing on one of China’s 2 main boards.
All of those changes are undoubtedly factors in Focus Media’s decision to pursue a re-listing in China, following its management-led privatization 2 years ago. According to the latest reports, Focus has just made a major move that could pave the way for such a domestic listing by refinancing a $1.275 billion loan. (English article) The reports add that Focus has identified a target company to take over for its planned backdoor listing, helping it to avoid the current cumbersome IPO path.
Focus Media was once an investor darling when it listed in New York a decade ago, but later became mired in bad assets after embarking on a buying binge. This backdoor listing plan was first reported in February, and has Focus aiming for a market value of about 46 billion yuan ($7.4 billion), or about 3 times its $2.7 billion valuation when it de-listed in 2013. (previous post)
Meantime, Xueda shares jumped 6.3 percent to $3.35 after it announced its receipt of the buyout offer from Insight Investment for $3.38 per American Depositary Share (ADS). (company announcement) Xueda certainly fits the description of Chinese firms that have recently abandoned New York due to lack of interest from US investors. Its shares once traded as high as $12 back in 2010, but crashed in 2011 during an investor confidence crisis in Chinese stocks. Since then they’ve mostly traded in the $2-$4 range.
The offer for Xueda follows a recent similar spate of buyouts, with online game firms becoming a particular favorite. Most recently Perfect World (Nasdaq: PWRD) received a management-led buyout offer, and Shanda Games (Nasdaq: GAME) is also in the process of de-listing. (previous post) If the Focus Media deal succeeds, which looks like a good possibility, I do expect we could see some of these other former US-listed companies try to make similar re-listings in China, where perhaps their shares will be more appreciated by local investors who recognize their names.