Some Chinese companies giving up their U.S. stock listings
HONG KONG -- Chinese companies that obtained listings on U.S. stock exchanges within the past few years are increasingly going private.
Harbin Electric, a Chinese maker of electric motors that traded on Nasdaq, did so last month. A half-dozen others — including Sinoenergy, China Security & Surveillance and Chemspec — have gone private in the past 18 months and dozens more are in talks to do so, say lawyers working on the deals.
The trend comes as accounting scandals and the slowing of the world's second-largest economy rattle U.S. investors once enamored with the prospect of buying a piece of the booming Chinese economy.
"You have an environment that has become quite inhospitable to Chinese companies, and that causes a lot of them to rethink the desirability of being a public company in the U.S.," says Sidley Austin attorney Joseph Chan in Shanghai.
Some Chinese firms are also considering going private to avoid the costs of U.S. regulatory compliance, including legal and auditing fees.
By going private, companies no longer have to file financial reports and other disclosures with the Securities and Exchange Commission, but they are not shielded from investor lawsuits and investigations.
Hundreds of small Chinese firms flocked to the U.S. in recent years because of difficulty raising capital and listing on exchanges in mainland China, according to Paul Gillis, visiting professor of accounting at Peking University's Guanghua School of Management in Beijing.
Many of them accessed the U.S. market by buying a publicly traded but inactive company in a so-called reverse-merger deal. This backdoor route to the securities market tends to be less expensive and comes with less regulatory oversight than an initial public offering.
The SEC is investigating the financial statements made by Chinese reverse-merger companies including Duoyuan Printing and China One Sky Medical. A number of reverse-merger companies have also been attacked by short sellers, slapped with shareholder lawsuits and faced auditor resignations.
Peter Huang, an lawyer at Skadden Arps Slate Meagher and Flom in Beijing, predicts a growing number of Chinese companies that once listed overseas, and are going private, will later seek to list in Hong Kong or mainland China in hopes of getting higher valuations.
"I'm not going to sit here and say automatically, they're going to get higher valuations, but there's certainly that potential," says Eric Landheer, head of issuer marketing at the Hong Kong Exchanges and Clearing. "Investors here are willing to pay a premium for growth, and may have a better understanding (of the Chinese company) due to cultural and linguistic similarities."
By going private, Chinese companies can leave behind much of the harsh public scrutiny that has dogged the sector.
"The cost of being public is significant, and there has to be a benefit for it," says Barry Genkin, a Philadelphia-based partner at Blank Rome who chairs the firm's Asia practice. Some Chinese companies are realizing that "the cost of being public is really not worth it."
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