'Time ripe' for China firms to go private

Chinese companies whose shares are languishing in the United States could delist and return for a bigger impact, says banker

PUBLISHED : Monday, 29 October, 2012, 12:00am
UPDATED : Monday, 29 October, 2012, 5:08am

The depressed valuations at which some Chinese companies are trading on stock markets in the United States may prompt their controlling shareholders to take the companies private, a top China banker says.

"Given depressed valuation levels and an environment with abundant liquidity, we expect privatisation activity by Chinese companies, especially in the US market, to remain robust in the foreseeable future," said Brian Gu, head of corporate finance for China at Wall Street investment bank JPMorgan.

In August, about seven years after it listed on Nasdaq, Shanghai-based display-advertising company Focus Media surprised shareholders with a US$3.5 billion plan, backed by management and several private-equity funds, to go private.

If successful, the deal will make it the largest Chinese company to delist itself from a US stock exchange.

Gu's team is advising a special committee of Focus Media on the privatisation offer from a number of private equity firms, including the Washington-based Carlyle Group and Temasek-backed FountainVest Partners. The deal is ongoing.

Prior to the Focus Media privatisation bid, Gu was also the key man involved in the delisting of Shanda Interactive.

Gu believed some companies that might now want to go private could return for a bigger and more important listing after they restructured to become more valuable enterprises. Such privatisation decisions would depend on several factors, he added.

Firstly, the management of a company should control the majority of shares; secondly, shares should be trading at prices that management believed undervalued the company; and thirdly cash should be available in the company to back the privatisation financing.

As an example, shares in Focus Media had dropped more than 60 per cent from their all-time high when the deal to privatise the company was announced, and the shares have rebounded by 20 per cent year-to-date since the proposal.

Some mainland companies went public in the US in the early days because their founding entrepreneurs thought a listing would command greater respect among their clients. They were subsequently disappointed by low trading activity and a lacklustre price performance.

But Gu noted that nowadays many of his Chinese clients had become more sophisticated about capital markets.

"You need tailored and value-added ideas to capture the clients' attention in today's market," he said.

Earlier this year, JPMorgan was the sole bookrunner on a US$180 million convertible bond deal for the mainland's leading online travel agency,, which wanted to use the proceeds to repurchase its stock. It was the first such transaction for a company in the Asia-Pacific region excluding Japan.

The key to securing such deals, said Gu, was to be innovative - particularly in a market that was highly sceptical of some of the most basic of financial products, including the initial public offering of stocks.