Delisting Trumps IPOs as Valuations Fall: China Overnight

Delistings by Chinese companies that traded in the U.S. are outnumbering initial public offerings by the most in at least four years as valuations fall to the lowest since 2008.

So far in 2013, eight Chinese companies have delisted from New York exchanges, most recently 7 Days Group Holdings Ltd. on July 5, while only online retailer LightInTheBox Holding Co. has completed a U.S. IPO, according to data compiled by Bloomberg. In 2010, there were 38 IPOs and three delistings. The Bloomberg China-US Equity Index of the most-traded Chinese stocks sank 1.9 percent last week, extending declines in May and June, led by 51Job Inc. and Hollysys Automation Technologies Ltd.

Companies on the China-US gauge traded at a 30 percent discount on average to those for the Nasdaq Composite Index last month, the biggest gap since 2008, as growth slows in the world’s second-largest economy and short sellers target the firms. The China measure has slumped 15 percent this year, as Premier Li Keqiang said the nation seeks 7 percent annual growth this decade, down from more than 10 percent in the previous 10 years.

“I still see companies preparing for going-private deals and there’s no obvious trend of slowing down according to our deal flows,” said Catherine X. Pan-Giordano, a partner at Dorsey & Whitney LLP in New York, an international law firm that handles such transactions. “We didn’t see an obvious pickup of U.S. IPOs from Chinese companies, while we do see a bigger pipeline for Hong Kong IPOs based on the cases we are handling.”

ETF Declines

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., slumped 1.4 percent last week for a record eighth weekly decline. The Standard & Poor’s 500 Index gained 1 percent on July 5, bringing its weekly rally to 1.6 percent, after data showed faster-than-forecast jobs growth in the U.S.

7 Days, owner of China’s second-largest budget hotel chain, will stop trading on the New York Stock Exchange from today after being acquired by a buyout group led by Keystone Lodging Company Ltd. and existing shareholders including the company’s co-chairmen Boquan He and Nanyan Zheng, it said in a statement. The offer for the Guangzhou-based company was $13.8 for each of its ADR.

Focus Media Holding Ltd., a Hong Kong-based digital advertising company, withdrew its listing from the Nasdaq Stock Market in May after a $3.8 billion privatization deal. Short selling firm Muddy Waters LLC first accused the company on Nov. 21, 2011 of exaggerating the size of its ad display network, sending the shares of Focus Media down 39 percent that day.

51Job, Hollysys

51Job, a Shanghai-based online human resources service company, sank 5.4 percent July 5 to $61.85, sliding 8.4 percent for the week. It posted the biggest decline on the China-US gauge. Hollysys slumped 4.2 percent to a two-week low of $11.89.

Increases in the prices of modules and cells, and declines in costs for raw materials for solar panels, may boost second-quarter profit margins at manufacturers, Bloomberg Industries said in a report July 5. Deutsche Bank AG said in a July 3 note that positive momentum in the solar industry will continue for the next three to six months. Yingli, the world’s biggest solar-panel maker, jumped 16 percent last week to $3.76, the highest level since May 2012.

“Investors are beginning to view solar power projects as an attractive risk-reward opportunity,” Chris Kettenman, Chief Energy Strategist at Prime Executions Inc. in New York, said by e-mail. “We are hearing from multiple sources that the market is picking up.”

The Shanghai Composite Index sank 1.3 percent today to 1,980.77 as of 11:17 a.m. local time. The gauge advanced 1.4 percent last week, the first rally in five weeks. The Hang Seng China Enterprises Index in Hong Kong lost 2.2 percent today, having slumped for seven out of the past eight weeks.