Fears that the door to Chinese relistings of overseas-traded stocks had closed appear misplaced.
A private-equity offer for the travel site Qunar less than two months after Chinese regulators started looking at curbs on the practice indicates some investors are betting the door will at least stay ajar.
Ocean Management made a preliminary offer of $30.39 each for Qunar's ADRs, valuing the transaction at more than $4 billion. At 15 percent above the previous day's close, that offer isn't exactly generous considering deals for U.S.-listed Chinese firms were attracting average premiums as high as 36.3 percent in the third quarter of last year.
More recent concerns that the China Securities Regulatory Commission would limit valuations of relisted companies and implement quotas have brought down premiums to just 7.7 percent this quarter, according to data compiled by Bloomberg.
That bounty on buyouts is really just a form of risk premium: As the prospect of being able to relist in China falls -- something markets have started to believe in the past two months -- investors' willingness to make big bets also drops and premiums narrow accordingly.
Billionaire Wang Jianlin has been the loudest cheerleader for the take-private, relist camp. The chairman of Dalian Wanda Group is so optimistic about the prospects for relisting that he guaranteed a 12 percent annual return for domestic investors if Dalian Wanda Commercial Properties hasn't gone public in China by Aug. 31, 2018, or two years from the Hong Kong delisting.
It's important to remember that his guarantee didn't come at the height of the privatization craze last year, but in April, with Wang subsequently raising his bid by 10 percent only four weeks ago, after the CSRC publicized its concerns.
Such optimism is important for the more than $400 billion of U.S. publicly traded Chinese stocks caught between the changing fortunes of the Chinese economy and their wavering prospects as takeover targets. Such mixed signals have forced up share-price volatility among the 63 members of the Bloomberg China-U.S. Equity index.
Momo, YY and E-Commerce China Dangdang, all index members that received buyout offers, were hard hit early last month after the CSRC scrutiny was announced. YY alone has lost almost 45 percent since the start of May, culminating in its buyout backers canceling their $68.50 a share offer earlier this month.
Those YY investors who were spooked by the increased regulatory oversight may rue their lack of perseverance, if reaction to the Qunar offer is anything to go by. Its stock closed 11 percent higher after the buyout bid, a salient lesson to never discount Chinese investors' ability to get around red tape.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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