CSRC sidesteps question about rumoured ban on reverse takeovers
US-listed Chinese companies have been flocking to relist on the A-share market
China’s securities market regulator sidestepped a question about a rumoured ban on reverse takeover deals by US-listed Chinese companies in the A-share market after Chinese American depositary receipts and shell companies’ prices plunged in the past two days.
“We have noticed the great price difference in the domestic and the US market, and the speculation on shell companies, and are studying in-depth about the influences,” China Securities Regulatory Commission (CSRC) spokesman Zhang Xiaojun said on Friday.
US-listed Chinese companies have been flocking to relist on the A-share market since early last year, when the domestic market started a bull run, in order to shed depressed valuations in US markets.
The most popular way to get relisted on the A-share market is through a reverse takeover deal with a shell company.
We have noticed the great price difference in the domestic and the US market, and the speculation on shell companies, and are studying in-depth about the influences
The shells they seek are Shanghai- or Shenzhen-listed firms with lacklustre earnings or even loss-makers, whose major shareholders are willing to transfer control to other investors and cash out from the business.
The shell company could buy a bigger privately held company through a share exchange that gives the private company’s shareholders control of the merged entity. The process is called reverse takeover, or back-door listing.