For the private-equity firms and funds that found themselves stuck when China last month closed off avenues for overseas-traded companies to relist at home, the nation's richest man has a solution.
Wang Jianlin, owner of Dalian Wanda Group -- which made headlines with its purchases of the AMC cinema chain and the Legendary studios -- is offering a mouthwatering 12 percent guaranteed return for shareholders that help him take private Wanda's underperforming Hong Kong property unit.
The planned $4 billion deal for Hong Kong-listed Dalian Wanda Commercial Properties is the latest by Chinese companies seeking to withdraw their shares from trading in Hong Kong or the U.S. because valuations at home are higher. Wanda Commercial, for instance, trades at about 6.4 times last year's earnings even after surging more than 60 percent since late February. That compares with a multiple of 10.9 for the Shanghai Stock Exchange Property Index.
Wang is considering offering HK$48 or more per share to take private the developer of shopping malls, hotels and apartments -- the same price at which the company went public in December 2014. Until a couple of days ago, the shares were still trading below that level. That reflected doubts over the offer's prospects for completion, given the obstacles to making Wanda Commercial's shares publicly traded in the mainland.
The billionaire's latest gambit is an iron-clad promise of gains even if the promised China listing doesn't come through. If the developer hasn't gone public on a mainland exchange by either Aug. 31, 2018, or two years from its delisting in Hong Kong, Wanda Group will buy back the shares at a level guaranteeing a 12 percent annual return for domestic investors and 10 percent for those overseas, according to a document sent to shareholders.
Small wonder that Wanda Commercial's stock traded above HK$51 on Friday. Investors such as those that helped fund Qihoo 360's $9 billion delisting from New York, completed last month, can only look on with envy.
Wanda is seeking private investors willing to write checks of at least $500 million that aren't denominated in yuan, according to a review of the document by the Wall Street Journal. The company also doesn't want investors to sell their holdings to small investors that could hobble a Chinese listing.
The promised returns are a safeguard at a time when relisting in China is looking harder than ever. Despite a partial revival after January's rout, the Shanghai Composite Index remains down more than 16 percent this year. Hopes of a new exchange for startups in Shanghai have been dashed, as have those for a shift to a disclosure-based IPO regime that might help to clear a backlog of hundreds of companies waiting to go public. (In China, unlike the U.S., the securities regulator acts as a gateway for companies wanting to sell shares and frequently shuts the door when markets tank. The handful of companies that have managed to relist in China have done so via complicated reverse mergers.)
Still, bids to take companies private have picked up again in the U.S., suggesting some see the China IPO gate swinging open more widely again soon. There have been seven offers so far this year, with some, such as Beijing online retailer E-Commerce Dangdang, even fending off rival bids. Wang's offer is a signal of confidence that Wanda Commercial will be successful in its plan to move its listing to China. Coming from one of the nation's best-connected businessmen, that's worth noting.
Hong Kong could see more desertions after Wanda. Citigroup analyst Oscar Choi said this week that Evergrande, an indebted Chinese real estate company whose shares have been faring worse than Wanda Commercial's, was likely to join Wang's firm in seeking to decamp to a mainland exchange.
Wang has announced more than $25 billion of investments and acquisitions during the first quarter of 2016. The busy dealmaker may have just breathed new life into the China exchange-hopping game.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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