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Summary A growing number Chinese companies are pulling their shares out of US exchanges.
This week, Focus Media Holding Ltd., announced its chairman and private equity firms want to buy back its U.S.-traded shares and take the Shanghai-based advertising company private.The deal would value Focus Media at $3.5 billion, according to financial information firm Dealogic.Smaller companies also are withdrawing from U.S. exchanges. In a sign of official encouragement, a Chinese business magazine said a state bank has provided $1 billion in loans to help companies with listings abroad move them to domestic exchanges.The withdrawals follow accusations of improper accounting by some companies and a deadlock between Beijing and Washington over whether U.S. regulators can oversee their China-based auditors.Some Chinese companies say they are pulling out of U.S. markets because a low share price fails to reflect the strength of their business. Withdrawing also eliminates the cost of complying with American financial reporting rules.Focus Media has been seriously undervalued on U.S. stock markets and being taken private will help to promote its long-term strategic development, said a company spokeswoman, Lu Jing.The company, formed in 2003, operates electronic advertising displays in elevators, grocery stores and other locations.We havent considered whether to list the company on Chinese markets but that possibility has not been excluded, Lu said.U.S.-traded Chinese companies faced scrutiny after auditors for several quit and others were accused of accounting irregularities. Concerns about company finances have caused share prices to tumble, costing investors several billion dollars.Probably all these companies have some questionable accounting, so they may prefer to move out of the U.S., not to come under too much scrutiny, said Marc Faber, managing director of Hong Kong fund management company Marc Faber Ltd.A financial firm, Muddy Waters Research, accused Focus Media last year of overstating the number of its display panels and questioned acquisitions reported by the company. Focus Media denied the allegations and said independent auditors confirmed the size of its network.This week, Muddy Waters founder Carson Block said in a statement: The markets are far better off if a few deep pocketed investors own Focus Media instead of mutual funds and other public shareholders.The group proposing to take the company private includes its chairman, Jason Nanchun Jiang, and private equity firms Carlyle Group, CITIC Capital Partners, CDH Investments and China Everbright Ltd.The status of Chinese companies in the United States could be complicated by a dispute between U.S. and Chinese regulators over whether American inspectors will be allowed to examine the work of their China-based audit firms.Washington wants auditors to hand over documentation on companies that are under investigation but Chinese authorities have barred the release of some information. If a settlement is not reached, the SEC could reject audits by China-based firms, forcing companies to find new auditors.In May, Beijing took steps to tighten control of local affiliates of major accounting firms by issuing a requirement for Chinese citizens to head those offices.Dozens of Chinese companies issued shares on Wall Street over the past decade, raising billions of dollars from investors who wanted a stake in the countrys booming economy.Many were private companies that could not raise money on Chinese exchanges that were created to finance state industry or wanted the higher public profile.Chinese regulators encouraged the move as a way for entrepreneurs to raise money and speed the development of Chinas economy. But in recent years Beijing has encouraged private companies to issue shares in China to help develop its markets and give Chinese households better investment options.Regulators have made it easier for private companies to join Chinas two exchanges in Shanghai and the southern city of Shenzhen, though most listings still are for state enterprises. The Shenzhen exchange created a second board for small companies, imitating the U.S.-based Nasdaq market.Major state companies such as oil giant PetroChina Ltd. and China Mobile Ltd., the worlds biggest phone company by subscribers, also have issued shares abroad. None has indicated it plans to withdraw from foreign stock exchanges.The economics also are shifting in Chinas favor.U.S.-traded companies saw share prices plunge following the 2008 global crisis, while economic growth at home, even after a recent decline, is still forecast at about 8 percent this year. Rising Chinese incomes are creating a bigger pool of money for investment.Generally speaking, a companys shares are sold at a higher premium in initial public offerings on Chinese stock markets than on U.S. markets, said Mao Sheng, a market strategist for Huaxi Securities in the western city of Chengdu.Also, he said, If the companys business is mainly in China, it will be good for its brand promotion.
