Simcere to de-list, Vipshop adds shares

A new de-listing bid by Simcere Pharmaceutical and rumoured similar plan by The9 show that overseas investors remain indifferent toward all but a few high-growth Chinese firms

Doug Young

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”

A week after shares of Internet portal Sohu (Nasdaq: SOHU) went on a roller coaster ride on rumours of a de-listing plan that the company later denied, we're getting word that drug maker Simcere Pharmaceutical (NYSE: SCR) is launching the latest privatisation plan by a US-listed Chinese firm. In related news, media are also reporting that online game operator The9 (Nasdaq: NCTY) is also considering such a plan. But red-hot e-commerce firm Vipshop (NYSE: VIPS) is moving in the opposite direction, announcing a plan to sell more shares to raise up to US$180 million. These very different tales show that overseas investors have become quite choosy toward Chinese companies in the current climate, richly rewarding a few fast-growth players while largely ignoring most others.

Let's start things off with Simcere, which has become the latest in a growing list of neglected US-listed Chinese firms to announce a privatisation plan. Under terms of its buy-out proposal, Simcere shareholders would get US$9.56 for each of their American Depositary Shares (ADSs), representing a 20 per cent premium to their last close before the announcement.

Simcere shares shot up 16 per cent to US$9.25 after the deal was announced. The relatively big gap between the closing price and offer price means there is still some investor skepticism that this kind of privatisation deal can close. One of the first such privatisation bids from online entertainment firm Shanda Interactive took a while to close after the original offer, and another bid by outdoor advertising specialist Focus Media (Nasdaq: FMCN) is still waiting to close more than half a year after the original announcement.

Both of those deals may have run into trouble due to their massive size, as each company had a market capitalisation in the US$4-5 billion range at the time of their offers. By comparison, Simcere might have an easier time since its market cap is much smaller, at around US$500 million.

The story with Simcere is really quite disappointing, as the company offered a nice bet on China's fast-growing pharmaceutical industry. Simcere's shares traded as high as the US$16 range back in 2008, but are now at about half that level and show no signs of going anywhere as investors have become indifferent to the stock.

Other Chinese companies are facing similar indifference, as investors avoid their stocks due to their high volatility and also doubts about the quality of their bookkeeping due to a series of accounting scandals in 2011. Other companies to privatise over the last year include Hong Kong-listed Alibaba.com, and US-listed Grentech, while hotel operator 7 Days (NYSE: SVN) is also in the process of privatising.

Meantime, Chinese media are reporting that The9, a former high-flyer in the online game space, is meeting with investors and private equity firms to discuss a potential privatisation. I wouldn't be surprised at all if the reports were true, since The9 has been largely ignored by investors for several years since it lost its license to offer the popular World of Warcraft game.

Trading of the company's shares in New York is anemic, and its tiny market cap of just US$80 million would make it an easy candidate for such a privatisation. The9's shares closed down one per cent on Monday, perhaps because even the short-term stock buyers no longer pay attention to the company.

Finally, let's take a look at Vipshop, whose shares have become red hot over the last few months as the company became one of China's few publicly listed e-commerce firms to earn a profit. Media are reporting that Vipshop, which raised a meager US$70 million in its New York IPO a year ago, will sell an additional six million ADSs to raise up to US$180 million. Vipshop shares shot up 6 per cent on the news to re-approach a recent all-time high. The reaction indicates there's still plenty of appetite for this company, making it one of the few Chinese stocks to earn investor favour.

Bottom line: A new de-listing bid by Simcere Pharmaceutical and rumoured similar plan by The9 show that overseas investors remain indifferent toward all but a few high-growth Chinese firms.

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