The confidence crisis for US-listed China stocks has taken an interesting twist with the start of a bidding war for AsiaInfo-Linkage (Nasdaq: ASIA), one of the oldest US-listed China firms. The development underscores the fact that despite questionable accounting practices at many smaller US-listed Chinese firms, there are still many good companies in the market that may look like good values for buyers wanting to take advantage of depressed share prices that have resulted in cheap valuations. On the IPO front, meanwhile, a steady stream of noise from e-commerce giant 360Buy, which also goes by the name Jingdong Mall, indicates the company may be getting close to making its first public filing for a public offering that it first announced plans for last fall. Let’s look at AsiaInfo  first, as the new bidding war could be the first in a new string of buyout offers for healthy US-listed Chinese firms whose shares have tumbled by 50 percent or more in the last year after a series of accounting scandals. Media are reporting that big-name US private equity firms including KKR and TPG are eying bids for AsiaInfo-Linkage that could value the company at $1 billion or more. (English article) That would be a big premium over its market value that stood at about $700 million when Chinese investor CITIC Capital made an offer to buy out AsiaInfo last month for an undisclosed sum. (previous post) AsiaInfo’s shares rose 11 percent to $12.95 after news of a potential bidding war came out yesterday, and its shares have risen considerably from December when they traded below $7. Of course it’s also worth noting the company’s shares traded above $30 less than 2 years ago, when Chinese tech and Internet stocks were still popular. Investors will be watching closely to see how this new bidding war evolves, and I would expect to see more offers emerging for other healthy companies that private equity firms see as undervalued at current market prices. Meantime, 360Buy has just said it will invest 3.5  billion yuan, or more than $500 million, to beef up its logistics systems, in the latest of a series of recent announcements to raise its profile in the run-up to a potential multibillion-dollar US IPO. (English article) The company earlier this week announced the official launch of its e-book service, and has recently brought in a series of experienced managers from other companies to make itself more attractive to overseas investors. I wouldn’t be surprised to see the 360Buy make its first public IPO filing by the end of March if stock markets remain strong, though it will probably attract limited investor interest due to stiff competition from not only domestic rivals like Dangdang (NYSE: DANG), but also aggressive foreign players in China like Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT), which is trying to acquire a controlling stake in local player Yihaodian.

Bottom line: A bidding war for AsiaInfo-Linkage could presage more such wars for US-listed Chinese firms whose shares have been hit by negative investor sentiment.

Related postings 相关文章:

◙ AsiaInfo, Xinhua in Latest Listings Shuffle 新华电视悄然上市 亚信联创或被摘牌

◙  E-Commerce: 360Buy Awaits IPO Window, Amazon Expands 京东IPO融资心切 亚马逊物流扩张加剧竞争

◙ 360Buy Heats Up E-Books, People’s Daily Goes to Market 京东商城高调进军电子书,人民网开启上市进程

The following press releases and media reports about Chinese companies were carried on May 14. To view a full article or story, click on the link next to the headline.
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• AsiaInfo-Linkage (Nasdaq: ASIA) To be Acquired CITIC Capital Consortium (PRNewswire)
• Jingdong Expects Profitability in Next 7-12 Months (English article)
• Renren (NYSE: RENN) Shuts Down Mobile Projects – Source (English article)
• Home Inns (Nasdaq: HMIN) Reports Q1 Financial Results (PRNewswire)
• Haier Integrated Wins Suit Against Microchip Tech (Nasdaq: MCHP) (English article)
• Latest calendar for Q1 earnings reports (Earnings calendar)

Two of this year’s biggest IPOs are both in the headlines, kicking off what’s likely to become a steady flow of news surrounding upcoming listings for e-commerce leader Alibaba and Citic Group, one of China’s oldest and most successful conglomerates. Citic is the more interesting in this latest pair of news bits, since this is the first time we’ve heard about the group’s plans to go public via a backdoor offering through its Hong Kong-listed Citic Pacific (HKEx: 267) unit. Meantime, media are reporting that investment banks are so eager to underwrite Alibaba’s IPO that they’re offering to accept record low fees for their services.

Let’s begin with Citic Group, which has reportedly received regulatory clearance for its backdoor listing plan in Hong Kong. (English article; Chinese article) Under the plan, Citic Pacific would issue new shares to its parent to facilitate the backdoor listing, boosting the company’s market value about 6-fold from its current $6 billion to more than $36 billion.

The group contains numerous units, including Citic Securities (HKEx: 6030; Shanghai: 600030), China’s largest brokerage, private equity investor Citic Capital, and a stake in Citic Bank (Shanghai: 601988). It also owns a number of non-financial units, engaged in everything from steel to grocery stores. It’s unclear what will happen to the other listed units after the group lists, but if the offering is popular I would expect we could eventually see Citic privatize many of these separately traded companies.

From an investor’s perspective, the newly listed Citic Group would clearly be a play into China’s financial services market. The company offers an interesting array of banking, private equity and brokerage services that most listed Chinese companies don’t have. It’s also interesting because Citic is one of China’s more entrepreneurial groups, despite the fact that it’s state-owned.

I personally don’t like any of China’s state-run financial companies as investments, as all take their orders from Beijing and don’t always do what’s best for business. But if I had to pick 1 or 2 companies to buy, Citic Group would probably be near the top of my list, alongside leading bank ICBC (HKEx: 1398; Shanghai: 601398) and perhaps the recently listed bad asset consolidator China Cinda (HKEx: 1359).

Next let’s look at the latest news on Alibaba, which after months of indicating it wanted to list in Hong Kong suddenly shifted gears earlier this month and said it was moving ahead with a New York IPO. (previous post) All of the major investment banks have been jockeying for a piece of the offering, which could raise up to $15 billion, making it the world’s biggest for an Internet company since Facebook’s (Nasdaq: FB) $16 billion listing in 2012.

Now media are reporting the investment banks are so eager to underwrite this deal that they’re willing to accept fees equal to just 1 percent of the offering size — a level also not seen since the Facebook deal. (Chinese article) Normal fee levels are typically in the 3-5 percent range, indicating just how much everyone wants to get a piece of this offering.

At the end of the day, the final amount of money that goes to underwriters and Alibaba is really unimportant. That’s because the banks are chasing this offering for the prestige rather than the money, and Alibaba itself already has so much cash it doesn’t know what to do with it. Still, this offering is clearly shaping up to be the world’s biggest and most highly watched since Facebook in 2012. With any luck, Alibaba won’t suffer the same fate as Facebook, whose IPO ended up getting so overly hyped that the trading debut was marred by technical problems and the stock tanked in its first few months of trading.

Bottom line: Citic Group will become a good diversified China financial play after its backdoor listing in Hong Kong, while banks underwriting Alibaba’s IPO will get record low fees for their services.

Related posts:

• Alibaba Changes IPO Course, Heads For NY

• NY Fund, AsiaInfo Investments Raise Citic’s Global Profile

• Meituan Gets New Funds, Eyes IPO

An interesting new player may soon be coming to China’s crowded and highly fragmented private equity scene, with word that a major company has been set up by a group of leading entrepreneurs in Beijing and Shanghai. The company has a hefty 50 billion yuan in investment, equating to $8 billion. The player would be an important addition to China’s fast emerging field of major private equity firms, most of which are headed by entrepreneurial chiefs who are increasingly looking abroad for good investments.

China has plenty of money for private equity investment, much of it belonging to wealthy individuals who made their fortunes during the country’s economic boom of the last decade. But until recently, the country has lacked a field of strong, experienced private equity firms for those investors. As a result, China’s private equity sector is highly fragmented and populated by lots of smaller, poorly regulated firms that often serve as intermediaries to bring together wealthy individuals and investment projects.

That has begun to change in the last 2-3 years, with names like Fosun International (HKEx: 656), Citic Capital, HNA Group and Hony Capital emerging as major new players in the space with more seasoned, professional management. That group now looks set to get another big competitor, with word of this new investment company whose founders include some well-connected, major entrepreneurs.

Word of the new company emerged in a microblog posting by Shi Yuzhu, a well-known Shanghai entrepreneur and founder of online gaming firm Giant Interactive (NYSE: GA). (Chinese article) Shi disclosed that the privately owned company has already been established, and that he will personally invest 1 billion yuan for a 2 percent stake. That means the company’s total investment should be around 50 billion yuan.

There’s not much more detail in his post, though it includes a photo of a group of the group’s new founders. One of those founders is Dong Wenbiao, chairman of Minsheng Bank (HKEx: 1988; Shanghai: 600016), China’s first privately funded bank. The report indicates several others at Minsheng also will invest in the new company. Another partner is Lu Zhiqiang, chairman of Beijing-based China Oceanwide, one of the country’s earliest conglomerates set up back in 1985. The new company will most likely be based in Shanghai, China’s financial capital where both Minsheng and Giant are located.

This new company could draw on its big cash pile and entrepreneurial roots and connections in Shanghai, Beijing and around the world to quickly become a major player both inside China and also globally. Its home base of Shanghai is already home to one of China’s fastest-rising private equity firms Fosun, which is also controlled by another entrepreneurial billionaire Guo Guangchang.

In the last year alone, Fosun has trumped major global private equity firms to win in the bidding for stakes of a Portugal’s top insurer and French resort operating giant Club Med (Paris CU). (previous post) Fosun was also reportedly one of the finalists bidding to buy US financial publishing giant Forbes Media, though it’s been a couple of months now since the last reports on that deal.

We’ll have to wait and see some of its early investments before we can say more about the future prospects for this new company, whose tentative English name translates roughly to China Private Investment. But based on its big capital, strong government ties and entrepreneurial background, I could easily see this company quickly rise to become a major player, perhaps signing 2-3 deals in the $500 million to $1 billion range in its first year of operation.

Bottom line: A new private equity firm set to launch in Shanghai could quickly become a major player, drawing on strong connections and entrepreneurial backgrounds of its founding partners.

Related posts:

• Financiers Fosun, Ppdai.com Go To Market

• Fosun Closes In On Forbes Purchase

• NY Fund, AsiaInfo Investments Raise Citic’s Global Profile

The following press releases and media reports about Chinese companies were carried on April 23. To view a full article or story, click on the link next to the headline.
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• Yum Brands’ (NYSE: YUM) China Restaurant Sales Improve, Shares Rise (English article)
• Citic Capital, Sonae Sierra Form Joint Venture (English article)
• China Mobile (HKEx: 941) Announces Q1 Results (HKEx announcement)
• Game Consoles Become Legal in Shanghai Free Trade Zone (English article)
• Cheetah Mobile Makes New Filing For IPO To Raise Up To $300 Mln (Chinese article)
• Latest calendar for Q1 earnings reports (Earnings calendar)

Investors may be giving a cold shoulder to many new Chinese companies lining up to list overseas, but one name that’s not having any such troubles is Citic Group, one of China’s oldest and most entrepreneurial financial services conglomerates. Ironically, Citic isn’t even making a formal IPO as it seeks to list in Hong Kong, but instead is making a massive back-door offering using its Citic Pacific (HKEx: 267) unit as the vehicle. The latest reports say a group of top-tier global and domestic investors are lining up to buy into the new back-door listing, reflecting Citic’s attraction as an alternative for buyers looking to gain exposure to China’s financial services sector.

Citic Pacific will probably become even more attractive as China’s banks and brokerages come under mounting pressure due to the nation’s slowing economy. The banks are already gearing up for a massive bad-debt crisis, and have recently announced plans to sell tens of billions of dollars worth of new shares to bolster their capital bases. Meantime, the brokerages are struggling to find business in a broken domestic stock market that is showing no signs of improvement anytime soon.

Against that backdrop, it should come as no surprise that the list of major investors who have committed to buy shares in Citic’s back-door listing includes the likes of insurance giant AIA (HKEx: 1299), Singaporean sovereign wealth fund Temasek, and Japan’s Mizuho Bank. (English article; Chinese article) The group of major foreign investors have committed a total of $5.1 billion towards the $37 billion that Citic Pacific will need under a back-door listing transformation that will see it purchase most of its parent company’s assets.

The investment group also includes several major domestic Chinese buyers, led by the nation’s social security fund, which is providing $2.2 billion. Citic first announced the backdoor listing plan in April, in a move that would make its many different assets available to investors under a single company to be called Citic Ltd. Citic Pacific shares have ralled nearly 30 percent since the plan was first rumored, as the market gets excited about this new investment opportunity.

The new company will have a wide range of assets, but the most attractive ones will be its core financial services that are more commercially-oriented than many of China’s traditional state run banks and brokerages. Those assets will include Citic Securities (HKEx: 6030; Shanghai: 600030), China’s largest brokerage, as well as Citic Bank (HKEx: 988; Shanghai: 601988). They would also presumably include Citic Capital, the group’s main private equity arm that is emerging as a major player both at home and abroad.

The rise of Citic Pacific contrasts with traditional Chinese banks, which are struggling under mountains of bad loans made at Beijing’s request during the nation’s massive economic stimulus program in 2009 and 2010. Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) announced a plan last week to raise nearly $13 billion to boost its capital (previous post), and Bank of China (HKEx: 3988; Shanghai: 601398) has followed this week with a similar plan to raise $16 billion. Both banks will raise their money through the issue of preferred shares.

Amid all that fund-raising, China’s traditional major banks hardly look like an attractive investment option right now. Brokerages don’t look too exciting either, since they are being hurt by weakness that has made China’s domestic stock markets some of the world’s worst performers over the last 2 years. I personally like alternative financial services investments like private equity firm Fosun International (HKEx: 656) and bad asset manager Cinda (HKEx: 1359), which both are more commercially driven than most Chinese lenders. The new Citic Ltd could also fit that description, making it a strong choice for both the big institutions and retail investors looking for exposure to China’s financial services market.

Bottom line: Citic’s addition of major global investors to its Hong Kong backdoor listing reaffirms its attractiveness as a strong alternative for exposure to China’s financial services market.

Related posts:

• IPOs: Alibaba In Demand, Citic Eyes HK Backdoor

• Citic Enters US With Brokerage Stake Buy

• IPOs: Cinda Hot, Perfect World Not, Alibaba In London

An exciting trend is building momentum on China’s private equity scene, with a new generation of more entrepreneurial firms taking shape to compete on the global stage with traditional giants like Carlyle (Nasdaq: CG), KKR and TPG. One of the most active of those firms is the privately owned Fosun, which has become a regular headline maker due to its recent string of global acquisitions. Now the company is in the news once more, with word that it may soon become one of only a handful of companies in China to get a license to operate a private bank. In other private equity news, the highly anticipated launch of a major new player with strong ties to Shanghai’s financial community has finally come with the formal debut of China Minsheng Investment Corp (CMIC).

It’s probably not a coincidence that both of these stories revolve around Shanghai-based companies, since the city is already China’s financial center and is also a hotbed for this kind of entrepreneurial financial activity. By comparison, many of China’s stodgier, older private equity companies that previously dominated the sector are based in Beijing and have strong government ties. Those include sovereign wealth fund China Investment Corp and Citic Capital, the investment unit of the massive state-owned Citic Group conglomerate.

We’ll start our review of the latest Shanghai private equity news with the formal launch ceremony for CMIC on  Thursday. The new firm has strong ties to the locally based Minsheng Bank (HKEx: 1988; Shanghai: 600016), China’s first bank funded with purely private money. Minsheng Bank’s former chairman Dong recently resigned that position to become CMIC’s new chairman. (Chinese article)

CMIC will have a hefty 50 billion yuan ($8.1 billion) to invest, and is backed by 59 private stakeholders. Word of CMIC’s establishment first leaked out in April, and subsequent reports indicated that new energy would be one of its focus areas. (previous post) Other focuses will include iron and steel, mining, real estate and aviation. The company certainly has some strong people working for it, and its government connections could help it to win some lucrative deals domestically from the start. I expect we’ll also see it make 1 or 2 attempts at big global M&A in its first year, though it may take a little longer to close its first deal.

Next let’s look at the latest news on Fosun, which has a longer track record that includes a growing number of major overseas purchases over the last year through its private equity arm, Fosun International (HKEx: 656). The latest reports say Fosun will be one of the winners when Beijing awards its second batch of private banking licenses in the near future. (Chinese article) That move is part of a broader government drive to pump more private money and entrepreneurial spirit into sectors now dominated by state-run firms.

China awarded its first 3 private banking licenses last month, with Internet giant Tencent (HKEx: 700) as one of the recipients. (previous post) E-commerce leader Alibaba has also applied for a private banking license. There’s not much more news in the latest reports, except for the insider angle that Fosun is no longer applying for the license in partnership with Junyao Group, another major private Shanghai conglomerate.

Fosun certainly seems like a good choice to receive one of these new licenses, since it has lots of money to quickly capitalize a new bank, and could even draw on funds from its private equity operation. Fosun also has strong experience in the financial industry, which should give it an advantage over newer companies like Tencent and Alibaba. With those advantages, I would expect to see Fosun quickly set up its bank after getting the license, with initial capitalization in the $1-2 billion range.

Bottom line: The new CMIC will become a major player in the domestic private equity market in the next 1-2 years, while Fosun will quickly set up a private bank this year after getting a license.

Related posts:

• Tencent Beats Alibaba To Banking License

• Enterpreneurs Team Up In New Private Equity Firm

• New Private Equity Giant Eyes Solar Buys

Bottom line: Citic Capital and Fosun are expanding their tastes beyond the traditional Chinese preference for distressed assets, reflecting growing sophistication and diverging strategies of China’s emerging private equity buyers.

Chinese private equity is in a few major headlines this week, picking up assets in the technology, insurance and retail sectors in the US and Japan. The wide range of deals and geographies reflects the diverging strategies of some of China’s emerging private equity giants, which are rapidly developing their own individual personalities on the global stage. Citic Capital is behind 2 of the latest deals, picking up a retail asset in Japan and a US company that specializes in imaging technology. Meantime, Fosun International (HKEx: 656) has made a major new purchase in the US, offering to buy the remaining stake in an insurer that it first invested in last year.

Collectively these 3 deals are quite large, representing more than $4 billion in value. Such amounts would have been unthinkable just 2 or 3 years ago, when most Chinese global M&A was limited to big state-run firms buying mostly energy and resource assets as part of Beijing’s effort to feed China’s booming economy. Nowadays companies like Fosun, Citic Capital and HNA Group have emerged as a new generation of major global investors who make their own decisions independently of Beijing.

Let’s start with Citic Capital, which is the private equity arm of Citic Group, one of China’s oldest financial conglomerates that is technically state-owned but acts more commercially than most other big state-run firms. The bigger of its 2 deals has Citic Group joining a consortium that is buying imaging sensor maker OmniVision (Nasdaq: OVTI) in a deal valued at $1.9  billion. (English article)

This plan was first disclosed last year, but only now has a deal finally been signed. It will see OmniVision’s Nasdaq-listed shares purchased for $29.75 each by a group that includes Citic Capital, Hua Capital and Goldstone Investment. (company announcement) OmniVision is one of the world’s leading makers of camera sensors for smartphones, but has been relatively unappreciated by investors. The company’s  stock now trades at about double the level from its 2000 IPO, but is still well below several peaks reached since then.

Meantime, Citic Capital says it has also just closed its purchase of Japanese apparel company Mark Styler Co. (English article) The Japanese clothing designer and retailer owns a number of brands, including Emoda, Dazzlin and Murua, and has a network of more than 170 stores.

No financial terms were given, but a company of that scale would most likely fetch at least $100 million and possibly quite a bit more, depending on how profitable it is. Citic Capital is hoping to use its connections to help the company expand in China, though it could face a difficult time in an apparel market where many of the world’s top retailers are already well represented.

Last there’s Fosun, which is rapidly emerging as one of China’s most aggressive private equity firms after making a number of major global acquisitions over the last 2 years, including its purchase of the landmark One Chase Manhattan Plaza in New York and French resort operator Club Med. The company is once again in the headlines this week, saying it will pay at least $1.84 billion for 80 percent of US specialty insurance company Ironshore. (English article) Fosun previously bought 20 percent of Ironshore last year for $464 million, valuing the entire company at about $2.3 billion.

Fosun’s aggressive Chairman Guo Guangchang said the Ironsource buy is just part of his plan to spend $2.4 billion to buy 5 insurers in the US, Europe and Asia this year. The company already owns a leading Portuguese insurer as part of a major acquisition last year, reflecting Guo’s bullishness on the sector. (previous post) We should expect to hear more acquisition news this year from Fosun, Citic Capital and perhaps one or 2 other emerging Chinese private equity firms, with developed markets shaping up as one of their favorite shopping destinations.

Related posts:

• FINANCE: Sunny Skies For Fosun With Club Med Win

• Outbound M&A Starts Strong In 2014

• NY Fund, AsiaInfo Investments Raise Citic’s Global Profile

Bottom line: Focus Media could complete its backdoor listing in Shenzhen within the next month, kicking off a new wave of similar migrations by formerly US-listed Chinese firms looking for higher valuations from local investors.

Faded outdoor advertising specialist Focus Media is inching towards its goal of becoming China’s first formerly New York-traded firm to re-list in its home market, with reports that it has selected a Shenzhen-listed company to make a backdoor IPO. This particular migration has been in the works for more than a year now, and could end soon with this backdoor IPO that would see Focus take over the public listing of Hongda Building Materials (Shenzhen: 002211).

Many western investors may be scratching their heads at this somewhat strange move, since the businesses of Focus Media and Hongda are quite different. But this kind of backdoor listing is quite regular in nearby Hong Kong, where shell companies like Hongda are relatively common. Such shells were real businesses at one time, but then ultimately failed to thrive. In the US or other western markets such firms would often be forced to de-list; but stock market operators in Hong Kong and China are far less aggressive about taking such actions.

For that reason, the Chinese securities regulator might actually welcome and encourage this kind of backdoor listing, which would allow it to clean up the market of companies whose core business is essentially dead. Hongda appears to be such a company, having reported an operating loss of about $5 million on $100 million in revenue in 2014. Those figures are far smaller than those for Focus Media, which reported a $238 million profit on nearly $1 billion in revenue for 2012, its last year as a public company before it privatized and de-listed from the Nasdaq.

According to the latest reports, trading in Hongda shares has been halted for the last half year, and Focus is now preparing to submit its first regulatory documents related to the backdoor IPO. (Chinese article) Focus declined to say how much of Hongda its current stakeholders would receive following the backdoor listing. Such a listing would typically see Focus’ current stakeholders sell their entire company to Hongda, which would issue a huge amount of new shares in exchange for Focus’ asset.

Focus’ current shareholders include its founder Jason Jiang, who holds the biggest single stake of about 27 percent of the company, followed by FountainVest Partners with 20 percent, Fosun International (HKEx: 656) with 17 percent, and Citic Capital with about 10 percent. Carlyle was also a key player in helping to take the company private in early 2013, though it’s unclear if it still holds a stake in Focus.

Listing documents that Focus is preparing to submit say the company is aiming for a valuation of about 45 billion yuan ($7.3 billion), which would be nearly triple the $2.7 billion it was worth at the time of its privatization 2 years ago. While some might scoff at the huge value differential, it’s worth noting that other Chinese firms have gotten hugely inflated valuations over the last year by listing at home.

One of those, video player maker Baofeng (Shenzhen: 300431), was in the news earlier this month after its shares rose nearly 20 fold in the first month after their IPO. (previous post) Baofeng had previously tried but failed to make listings in New York. But its hugely successful Chinese IPO is capturing widespread attention, as other companies enviously eye its current market value of about 30 billion yuan and meteoric price-to-earnings ratio of about 600.

Focus has previously discussed its plan for this kind of a backdoor listing, and other recently privatized Chinese companies that were previously listed in the US will be watching closely to see how the things work out. If everything goes smoothly, Focus could easily pave the way for a rapid series of re-listings by recently privatized names like online game maker Giant Interactive and hotel chain 7 Days. All of those would almost certainly get far higher valuations from Chinese stock buyers who are more familiar with their names and far less interested in financial fundamentals than US-based investors.

Related posts:

• FUND RAISING: Focus Media Eyes China Listing, Xueda Gets Buyout Offer

• INTERNET: Perfect World Privatizes, Renren Next?

• MEDIA: Focus Media Eyes Market Return With A-Share Plan