China ADR Buyout Trend Resumes as Two More Companies Get Offers

  • China Ming Yang and SORL Auto receive privatization bids
  • Value of 2015 delisting deals at record high of $32 billion

China Ming Yang Wind Power Group Ltd. and SORL Auto Parts Inc. became the latest U.S.-listed Chinese companies to receive buyout offers, reviving this year’s record flow of going-private deals.

American depository receipts of China Ming Yang, a maker of wind turbines, fell 4.1 percent to $2.13 in New York on Monday. Chairman Zhang Chuanwei, who holds 33 percent, proposed to buy the remaining shares in the company that he doesn’t already own for $2.51 in cash per ADR, according to a Nov. 1 statement. SORL Auto rose 4.3 percent to $2.43 after Chairman Zhang Xiaoping offered to buy a 41.2 percent stake for $2.84 per share.

An all-time high of 34 Chinese companies trading on American exchanges have received privatization offers this year, the majority of them in the first six months as stocks on the Shanghai Composite Index surged and made it attractive for companies to shift their listings to China from the U.S. While the takeover bids slowed since June amid a mainland selloff, they are now coming back as investors and executives seek to take advantage of higher onshore valuations as markets stabilize.

Low Valuations

“As long as there are woefully undervalued Chinese companies listed on U.S. exchanges, there will be managements seeking the buyout opportunity,” Peter Halesworth, founder of Heng Ren Investments LP., whose firm invests in small-cap Chinese stocks, said by e-mail. “The biggest problem is the ridiculously low valuations being proposed to US investors.”

China Ming Yang, which has a market value of $328 million, has advanced 13 percent since an almost two-year a low in September. Chairman Zhang’s offer represents a premium of about 20 percent to the ADRs’ volume-weighted average closing price over the past 30 trading days, according to the statement. The market capitalization of SORL Auto Parts, a maker of car parts, has been cut to $46.9 million from $85.3 million in April as the stock tumbled.

This year’s going-private deals, which have a total value of $32 billion, have on average offered investors a 17 percent premium to the companies’ mean trading prices prior to their announcements, the lowest since 2005, data compiled by Bloomberg show.

Surprising Price

China Ming Yang trades at 6.7 times reported earnings, the lowest valuation among its 46 Chinese peers, while SORL Auto’s 3.9 multiple trails an average ratio of almost 80 among its local rivals, according to data compared with Bloomberg.

Even as the bid for SORL Auto represents a premium of about 40 percent over the average closing price of the company’s share during the last 20 trading days, it’s undervaluing the company, according to William Gregozeski, an analyst at Greenridge Global.

“While the offer is not a complete surprise the offer price certainly is, as it is far below fair value,” Gregozeski wrote in a report on Monday. “This looks to be a bad deal for shareholders, who we expect will demand a higher takeout price, which can easily be justified by nearly any valuation metric.”

The Bloomberg U.S.-China equity Index advanced for a second day, climbing 1.5 percent to the highest since Aug. 10. The gauge trades at 8.1 times reported earnings, less than half of the multiple for the Shanghai Composite.

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