shareholders did more than pave the way for the privatization
of one of Chinas leading web-and-gaming companies when
they voted overwhelmingly on February 16 to back a $750 million
management buyout they also marked the end of an
For more than a decade,
Chinas tech titans made pilgrimages to New York, in
search of capital, credibility and through Nasdaq stock
listings a critical mass of knowledgeable investors.
Now, disillusioned by
soggy valuations and tighter US regulations, many are
considering making the trek home, delisting from New York and
relisting in Hong Kong or Shanghai bourses that
guarantee higher valuations, bustling retail-investor
communities and light-touch regulators.
Analysts point to a
long-term process of repatriation one implicitly
encouraged by authorities in Beijing as Chinese
companies opt to return to the mainland, with others choosing
never to leave home in the first place.
"This is part of a
general and ongoing trend," says Dick Wei, a technology analyst
at JPMorgan Chase in Hong Kong. "Valuations in China and Hong
Kong are higher. And as far as listing requirements go, they
are far less vigorous in Hong Kong or the mainland than [they
are in] the US."
Then there is the sheer
amount of capital within the mainland. China is not yet as
wealthy as the US, but its population boasts a large savings
pool desperate to invest in solid, reliable blue chips
and in the Peoples Republic, former US-listed big tech
firms are as close as you get to corporate royalty.
"This market [the process of delisting in the US and relisting
in China] is being driven by Chinas huge savings pool,"
says David Wolf, president and CEO of Beijing-based corporate
consultancy Wolf Group Asia. "Theres more than enough
capital in the mainland market to support some big IPOs by
Chinas leading tech entrepreneurs. This is a process that
has only just begun."
David Wolf, Wolf Group Asia
The news is worrying for
executives at Nasdaq and NYSE Euronext, owners of the New York
Stock Exchange. At the end of 2011, 174 Chinese stocks were
listed in the US, represented by the USX China Index. This
roster includes internet firms NetEase and Sohu, and search
website Baidu, all of which turned their founders into
overnight billionaires after New York listings.
Yet some US investors
might not miss an outflow of China stocks. Jialong Shi, a tech
analyst at CLSA in Hong Kong, says US investors, burnt by
profits warnings and ropey governance, "tend to price in a
discount on Chinese companies".
Statistics appear to bear
this out. The USX China Index is trading at around 12 times
earnings, compared with 20 times for Hong Kongs Hang Seng
Composite Information Technology Index.
And looking at the
valuations of single stocks, Perfect World, Chinas
fourth-largest online gaming firm, trades at around 4.5 times
its estimated earnings in New York, while its smaller rival,
NetDragon Websoft, is trading at just shy of 60 times earnings
in Hong Kong. Such valuations, analysts says, give tech firms
greater impetus to relocate back home.
Many believe a trickle
from west to east could become a flood. And its not just
tech firms seeking to return home. Sixteen mainland corporates
have announced plans to delist from the US since 2010,
including Funtalk China Holdings, which delisted from the NYSE
in August, and property data provider China Real Estate
Information. Funtalks senior vice-president, Francis Wan,
subsequently refused to rule out a relisting in Shanghai or
several Chinese tech firms frustrated by their own rock-bottom
valuations. "Id look at [online game developers] Changyou
and Giant Interactive Group," says one Hong Kong-based analyst,
who declined to be named. "Those are the [type of] companies
that would benefit from [relisting in] China."
Another points to
Ninetowns Internet Technology, an online provider of
international trade solutions. Changyou, as of February 21, was
trading at 5.5 times estimated earnings, with Giant trading at
7.1 times and Ninetowns at just shy of 13 times.
Most mainland firms
depart the scene quietly and with a modicum of grace, but not
all. Harbin Electric chief executive Yang Tianfu, after
delisting his firm from the NYSE in November, said he was
"tired of the US", and he could "easily" complete a listing in
Shanghai or Hong Kong. US short-sellers, including Citron
Research, had alleged the firm was being run fraudulently;
Yang, in turn, complained he "couldnt communicate with
Not all corporates will
simply swap one stock market for another. Shanda Interactive,
for instance, is likely to follow a more nuanced route. Since
Beijing bans Chinese firms from having dual mainland listings
at group and subsidiary level, Shanda Interactive co-founder
Chen Tianqiao is expected to pursue the listing of one or more
of his subsidiaries.