China’s stock regulator is considering measures to curb the flow of overseas-traded Chinese companies seeking backdoor listings in the nation’s equity market, people with knowledge of the matter said.
The China Securities Regulatory Commission (CSRC) is weighing possible restrictions on reverse mergers, including capping valuation multiples for deals involving companies that previously traded overseas, the people said.
Another option being discussed is introducing a quota to limit the number of reverse mergers each year from companies formerly listed on a foreign bourse, the people said, asking not to be identified.
Chinese regulators are concerned that the valuations mooted for some Chinese backdoor listings are too high and could affect the stability of the stock market, the people said.
The Chinese government also wants to avoid encouraging more buyouts that could prompt a wave of fund outflows and increase depreciation pressure on the yuan, the people said.
At least 47 US-traded Chinese companies have received buyout offers totaling US$42.6 billion since the start of last year, lured by the prospect of relisting at a higher valuation in Shanghai or Shenzhen, Bloomberg data show.
Any new regulations could affect companies like US-listed security software maker Qihoo 360 Technology Co, whose US$9.3 billion buyout is still pending after it signed a definitive deal agreement in December last year.
“The government is worried that the return of companies with stronger brand names will suck in a lot of liquidity from smaller companies,” Partners Capital International (博大資本國際) chief executive Ronald Wan (溫天納) said in Hong Kong by telephone yesterday.
The stock regulator on Friday last week said it was conducting “in-depth analysis and research” on the effects of Chinese companies seeking to relist in China after delisting from overseas markets.
Speculation in shell companies used for backdoor listings requires attention, commission spokesman Zhang Xiaojun said.
Any cap on reverse merger valuations would temper investors’ expectations for quick gains from wealth-management products tied to domestic relistings, sources said.
Billionaire Wang Jianlin’s (王健林) Dalian Wanda Group Co (萬達集團) is guaranteeing a 12 percent annual return to wealthy domestic investors willing to join the proposed buyout of its US$29.9 billion commercial property arm listed in Hong Kong.
Potential changes to rules governing how overseas-traded companies relist on a Chinese exchange are part of a broader discussion among regulators on how to manage all backdoor listings, the people said.
The commission did not immediately respond to a faxed request for comment.
Outdoor advertising firm Focus Media Holding Ltd (分眾傳媒) and online game developer Giant Interactive Group Inc are among companies that have gained domestic listings through reverse mergers, which can help get around the long waiting list for initial public offerings in China.
Developer Evergrande Real Estate Group Ltd (恆大地產集團) has also taken steps to move it closer to potentially switching its stock market listing to China, while Autohome Inc’s chief executive is leading a group of investors who last month offered US$3.6 billion to take the Chinese car Web site private, data compiled by Bloomberg show.
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