China Going-Private Targets Extend Selloff on Deal Scrutiny

  • 21Vianet, Momo lead declines in U.S., plunging most on record
  • CSRC says it's conducting in-depth analysis on market impact

U.S.-traded Chinese companies that are seeking to move their listings to the mainland tumbled for a third day as speculation mounted that the Chinese regulator will move to prevent the deals from going through.

The American depositary receipts of Momo Inc., the Chinese dating app, fell 16 percent to $12.27, the most since its initial public offering in 2014. YY Inc. extended a 3-day decline to 22 percent, the most on record since its 2012 debut. Qihoo 360 Technology Co., whose $9.3 billion go-private bid is the biggest among Chinese ADRs. plunged 11 percent. The Bloomberg China-U.S. Equity Index fell 3.6 percent.

The declines came after the nation’s securities regulator signaled Friday that the trend of delisting in the U.S. to sell shares in the mainland at higher valuations would come under greater scrutiny. At local exchanges, companies seen as vehicles for re-listing plunged for a second day on Monday.

“A lot of U.S. investors don’t believe the privatization will occur,” said Brad Gastwirth, San Francisco-based chief executive officer of ABR Investment Strategy, which invests in U.S.-listed Chinese companies. “It’s tough to say all of these deals will go through. But in this environment, people sell first and ask questions later.”

Regulatory Review

The China Securities Regulatory Commission said on Friday it’s conducting “in-depth” analysis of how companies returning to Chinese exchanges via initial public offerings or mergers and acquisitions would impact the stock market. In a March report, Haitong Securities Co. listed small capitalization and low return-on-equity and debt as among the key criteria for selecting a shell company.

Internet data carrier 21Vianet Group Inc. fell a record 24 percent to $14.18. Trading volume of 5.2 million shares was almost six times of the daily average of the past three months.

Qihoo, the second-biggest search engine in China, said on Saturday that “rumors concerning its proposed privatization” were “untrue.” The company agreed in December to be taken private for $9.3 billion including debt, six months after first getting a non-binding offer. About 13.6 million of Qihoo shares were traded Monday, more than eight times the three-month daily average.

Concern that regulators may crack down on relistings along with disappointing trade data dragged down the broader stock market as the Shanghai Composite Index plunged 2.5 percent for a two-day loss of 5.4 percent on Monday, the most since late-February.

Before it's here, it's on the Bloomberg Terminal.