Chinese ADR Buyout Bids Keep Coming Amid Mainland Market Chaos

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Surging stock-market volatility in Shanghai and a rout that wiped out as much as $4 trillion in market value haven’t stopped the record flow of going-private offers for U.S.-traded Chinese companies.

The online travel agency Elong Inc. was the latest to receive a bid when Tencent Holdings Ltd. made a buyout offer at a 27 percent premium on Monday. It was the 28th proposal this year by an existing shareholder to purchase a Chinese company’s American depositary receipts. Tencent hasn’t provided details on its plans for Elong.

The pace of buyout offers accelerated in the first half of this year as stocks on the Shanghai Composite Index surged as much as 60 percent, making it attractive for companies to shift their stock listings to China from the U.S. The number of takeover bids dropped to four last month from 16 in June amid the selloff in mainland shares.

“The booming stock market in the first half of this year really accelerated the process,” David Lu, head of China corporate finance at Duff & Phelps who currently is a financial adviser on nine going-private deals, including E-House China Holdings, said by phone Tuesday. “Now things are probably just back to normal.”

Market Intervention

The privatization trend started more than two years ago and picked up earlier this year as some companies felt compelled to move their equity trading to China, where they saw competitors’ stocks trading at much higher multiples, Lu said. The 28 proposals this year compared with nine in 2014, and 12 in 2013. A total 17 companies received such offers in 2012, triggered by short sellers’ scrutiny of overseas traded Chinese firms.

Thirteen of the takeover bids announced this year, including Internet security company Qihoo 360 Technology Co. and online retailer E-Commerce China Dangdang Inc., came after the Shanghai stock benchmark started to plunge, data compiled by Bloomberg show.

The Shanghai Composite has increased 7.1 percent from its low last month as the government has set short-selling curbs, banned stock sales by major shareholders, and suspended initial public offerings amid efforts to prop up the market. Historical 30-day volatility, a measure of price swings, peaked at a record 65 percent on July 29. Stocks on the gauge still sell for an average 65 times projected 12-month earnings, data compiled by Bloomberg show. That compares with a multiple of 25 for those on the Standard & Poor’s 500 Index.

Elong, which slumped as much as 43 percent from its high this year, surged the most since June 2014 in New York on Tuesday, gaining 20 percent to $17.10. Tencent offered to pay $18 per ADR to buy out shareholders. The Bloomberg China-US Equity Index jumped 2.2 percent to 121.15, ending a three-day decline.

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