Bottom line: Yum and McDonald’s are likely to complete spin-offs of their China units by year end, offering a new business template for multinationals that should be encouraged with incentives from Beijing.
Yum names board for China unit
Separate plans by fast food giants KFC and McDonald’s (NYSE: MCD) to spin off their China businesses into separate companies were in the headlines last week, in a new trend that could see other big multinationals take similar steps to address the market’s huge size and unique qualities. Each company is using a slightly different strategy, with KFC parent Yum Brands (NYSE: YUM) choosing a key strategic partner and separate listing for its China unit. By comparison, McDonald’s is simply selling its China stores to a strategic partner in a franchise-style arrangement, while maintaining control of its bigger China operations. Read Full Post…
Bottom line: McDonald’s is likely to choose a buyer for its China stores in the next 2 months, while China Foods’ decision to sell its stakes in several Coca-Cola bottling plants is probably a simple business decision that reflects changing priorities.
McDonald’s near a sale of China stores
Two western consumer giants are in the headlines of China’s rapidly shifting corporate landscape, led by word that the list of bidders vying to buy McDonald’s (NYSE: MCD) 1,650 China restaurants has been narrowed to 2. The other headline has one of Coca-Cola’s (NYSE: KO) top China business partners, China Foods (HKEx: 506), announcing its intent to dump its stake in several local bottling joint ventures.
Each of these stories illustrates the vital role that local partners play in the operations of foreign companies doing business in China. McDonald’s has largely owned and operated its thousands of China stores independently since entering the market in the early 1990s. But it wants to find one or more local partners to take over those operations as it moves to a more franchise-style model. Coca-Cola also uses a franchise model for the companies that bottle its trademark drinks that include Coke, as well as Sprite and many others. Read Full Post…
Bottom line: China Logistics’ IPO could rise 5-10 percent in its trading debut, while AirAsia could list in Hong Kong by year end and online lender Qufenqi could follow with an IPO in the first half of 2017.
AirAsia Eyes Second listing in HK
Hong Kong IPOs continue to heat up as we head into the heart of summer, with word of a major new listing from China Logistics Property and reports that budget carrier AirAsia may also be eyeing an offering in the market. Meantime, Qufenqi, the hot online lender that targets students, has just raised a hefty 3 billion yuan ($450 million) in new funding, in a prelude to what could become one of next year’s hottest IPOs. All of this comes against the backdrop of a looming mega offering by China’s Postal Savings Bank, whose $8 billion fund-raising target would make it the world’s biggest IPO since Alibaba’s (NYSE: BABA) blockbuster $25 billion offering 2 years ago. Read Full Post…
Bottom line: Visual China’s investments in 2 major western photo suppliers could raise some concerns about censorship, but mostly reflects a broader Chinese pattern of investment in western companies in decline.
Visual China invests in photo suppliers Getty, Corbis
Two deals that are attracting relative muted attention are seeing a Chinese company take major steps into the global photo market, reflecting the difficult state of affairs in an increasingly shared economy where the value of copyrighted material is shrinking fast. At the same time, the latest investments by Visual China (Shenzhen: 000681) are also raising some concerns about censorship, since the Chinese company will have growing influence over 2 of the world’s largest photo distributors, Corbis and Getty Images.
I do find Visual China’s sudden series of investments in copyrighted photos somewhat ironic, since China is notorious for piracy that often sees media and other publishers rampantly copy each others’ materials, often verbatim and without permission. But from a broader perspective, the current difficulties confronting big names like Corbis and Getty are the result of similar global trends that are seeing many owners of copyrighted materials undermined by free equivalents on the Internet. Read Full Post…
Bottom line: A scandal involving inflated sales reporting by workers at SouFun could cause the company to miss 2015 revenue guidance, and reflects pressures that China Internet firms are facing due to a slowing home economy.
SouFun uncovers inflated sales by employees
Just when it was beginning to claw its way back to favor with investors, real estate services website SouFun (NYSE: SFUN) is being rocked by a scandal after an internal probe revealed that some employees were inflating their new orders. The latest reports say SouFun has verified it fired some workers after uncovering the issue, though there’s no word on the magnitude of the problem.
More broadly speaking, this kind of report highlights the stresses that SouFun and rivals like E-House (NYSE: EJ) are facing due to a sharp slowdown in China’s overheated real estate market. That slowdown has caused prices to stagnate and transaction volumes to also tumble as buyers and sellers wait to see how the market will trend. That’s critical for companies like SouFun, since they depend on transactions for a big part of their business. Read Full Post…
Bottom line: Recent moves by Baidu, SouFun and 7 Days reflect frustration by Chinese companies at lack of understanding by western stock buyers, but also spotlight the need for these companies to better educate investors about their stories.
Better investor education needed from Chinese companies
A trio of headlines last week highlighted the growing financial alternatives for high-growth Chinese companies that have lately felt unappreciated by global stock buyers. The news was quite varied, led by a threat from online search leader Baidu (Nasdaq: BIDU) to privatize its shares from New York, and a large new investment by 2 major private equity firms in online real estate services giant SouFun (NYSE: SFUN). Meantime, the formerly New York-listed 7 Days hotel chain was in headlines as it sold itself to Shanghai’s Jin Jiang International (HKEx: 2006; Shanghai: 600754).
Each of these stories is quite different, but all reflect a growing arsenal of tools that high-growth private Chinese companies have to boost their profiles and valuations as they become more skilled at playing in global financial markets. At a more fundamental level, each of these moves also represents a form of education for investors, which is critical to helping outsiders understand a group of companies from China’s vibrant but still largely unknown private sector. Read Full Post…
Bottom line: Focus Media’s latest backdoor listing plan could stand a 50-50 chance of success, and should come as a warning of the difficulties that may face many other US-listed Chinese firms hoping to privatize and re-list in China.
Focus Media in new backdoor listing plan
You have to admire the persistence of Focus Media, the outdoor advertising specialist that’s trying to blaze a new homecoming trail for US-listed Chinese firms trying to privatize and re-list in China to get higher valuations. More than 2 years after leaving the Nasdaq and one failed re-listing attempt in Shenzhen, Focus is trying again with a new plan for a backdoor listing via a Shenzhen-listed shell company called Hedy Holdings (Shenzhen: 002027).
I’m actually being just slightly facetious in admiring Focus for its persistence, since it really has very few other options in this case. Big investors including US private equity giant Carlyle put up billions of dollars to help Focus de-list in 2013, and now they’re simply looking to recoup their investments and hopefully make some profits by re-listing the company at a higher valuation in China. Read Full Post…
Bottom line: Jin Jiang’s purchase of a large Chinese hotel operator reflects its ambitions to become a leading player in China’s slowing market, though it could be undermined by its roots as a state-run company.
Jin Jiang to take control of Plateno
We’re finally seeing some big consolidation start to happen in China’s crowded hotel industry, with reports that Shanghai-based operator Jin Jiang (HKEx: 2006; Shanghai: 600754) is near a deal to buy the parent of formerly New York-listed 7 Days. The move comes just 7 months after Jin Jiang made another major purchase in Europe, and signals the company is clearly becoming a player to watch in China’s lodging space.
China’s hotel industry is undergoing some major changes right now, as the market suffers from oversupply created during a major build-up in the first decade of the 21st century. Leading player Homeinns (Nasdaq: HMIN) is in the process of privatizing after its stock languished on Wall Street due to lackluster growth prospects. China Lodging Group (Nasdaq: HTHT), operator of the Hanting chain, also made a major move late last year when it announced a major tie-up with French hotel giant Accor (Paris: AC). (previous post) Read Full Post…
Bottom line: Focus Media could complete its backdoor listing in Shenzhen within the next month, kicking off a new wave of similar migrations by formerly US-listed Chinese firms looking for higher valuations from local investors.
Focus Media to list in Shenzhen via Hongda
Faded outdoor advertising specialist Focus Media is inching towards its goal of becoming China’s first formerly New York-traded firm to re-list in its home market, with reports that it has selected a Shenzhen-listed company to make a backdoor IPO. This particular migration has been in the works for more than a year now, and could end soon with this backdoor IPO that would see Focus take over the public listing of Hongda Building Materials (Shenzhen: 002211). Read Full Post…
Bottom line: Ant Financial is likely to get a low valuation from its new private placement due to the exclusion of foreign investors, but could see the figure reach up to $70 billion by the time of its 2017 IPO if it can rapidly build up its new services.
SOEs squeeze Ant Financial’s valuation
Yet another report has come out about an ongoing private placement by Ant Financial, saying the financial services affiliate of e-commerce giant Alibaba (NYSE: BABA) is now planning a domestic IPO in 2017. That’s a little later than was indicated in previous reports, which were probably a little too optimistic about a company whose various businesses are mostly less than 2 years old.
But the more interesting element in this recent flurry of reports has been what valuation the new private placement will bring for Ant, which is financially separate from the New York-listed Alibaba. Some of the earlier reports indicated Ant could be valued at up to $50 billion, which admittedly looks quite optimistic for a firm at its stage of development. But now the latest reports are bringing the number down sharply, saying the new funding will value Ant at between $35 billion and $40 billion. Read Full Post…
Bottom line: Focus Media’s plan for a backdoor listing in China stands a better than 50 percent chance of success, potentially opening a new re-listing path for Chinese firms whose shares are undervalued in New York.
Focus Media eyes China backdoor listing
Former advertising services high-flyer Focus Media is eying a plan to become listed again, with an ambitious target of tripling its value from just 2 years ago when it privatized. If the plan really works, it could create an attractive template for a return to publicly-traded status for the group of about a dozen Chinese companies that were formerly listed in New York but privatized after their shares became undervalued. The key to the plan appears to be a decision to list back at home in China, where Focus’ name is more familiar and local investors are far less sophisticated and prone to hype and overinflating values of well-known companies. Read Full Post…
