Chinese ADR Buyouts in Progress (Update)

Many pending buyouts progressed towards completion despite recent equity market volatility.  Since my last update:

• the Vimicro buyout was completed
• the Xueda Education buyout was approved, but has not yet closed
• the Jiayuan buyout was approved, but has not yet closed.  The company is essentially going public on China’s “New Third Board” through a reverse merger with a small recently listed competitor (story at China Money Network)
• the SORL offer was withdrawn “due to concerns over recent market conditions”.

and several new deals were announced:

• Trina Solar (competitor JA Solar also has a pending offer)
• Country Style Cooking
• Synutra
• Zhaopin

Recent market weakness may delay or disrupt completion of pending buyouts.  The CSI 300 market cap weighted index of the 300 largest Shanghai/Shenzhen listed stocks dropped 22% from its December high and nearly touched its August low:

The highly speculative Chinext index fell 30% from its December high:

The 20% fall in internationally listed Chinese companies represented by the S&P China Broad Market Index  left the onshore vs offshore valuation gap largely unchanged and a strong incentive remains for privatization restructuring and relisting on a domestic exchange.  A few recent developments to consider:

• Stricter enforcement of foreign exchange controls may complicate financing arrangements (see this China Law Blog post: Getting Money Out of China: What the Heck is Happening).
• The CSRC has begun approving new domestic IPOs under reformed rules
• The Shanghai exchange will launch a new board for “emerging industries” that will permit listing of companies with VIE structures and may allow dual-listings with New York (story at SCMP)

Considering these factors, a majority of the currently pending deals are likely to close: