Qihoo's Backdoor Success Won't Start a Trend

Real estate firms and games developers will find it harder to get the green light.
Photographer: VCG/Getty Images

Qihoo 360 Technology Co. is finally close to getting that much-anticipated China backdoor listing.

Investors expecting a flood of mainland debuts by Chinese firms that have deserted markets in the U.S. and Hong Kong will be disappointed, however: Tech outfits are welcome, real estate and games companies, not so much.

Homecoming Queen

Qihoo 360 is the biggest of take privates by Chinese companies that listed in the U.S. or Hong Kong

Data: Bloomberg; graphic by Bloomberg Gadfly

Qihoo 360, which late last month received approval for a share sale and asset purchase plan with Shanghai-traded elevator maker SJEC Corp., was one of several Chinese companies that listed offshore only to later seek a public presence back home where valuations were, at one point, almost three times as high.

While a surge in Chinese stocks listed outside of China has narrowed that gap, many firms are still waiting for regulatory approval to trade domestically.

With more than 500 corporations in the traditional IPO queue, some, like Qihoo, are plumping for reverse mergers, where they backdoor into an already listed shell. Focus Media Information Technology Co. got a listing in Shenzhen by acquiring  electronics manufacturer Hedy Holding Co. in 2015, for example.

In 2016, however, regulators clamped down on backdoor listings, making what was once a smooth path to Shanghai or Shenzhen much tougher.

Home Advantage

From late 2014 until early last year, mainland stocks were trading at higher valuations than those listed offshore

Data: Bloomberg; graphic by Bloomberg Gadfly

Qihoo, which delisted from the New York bourse at a valuation of $10 billion, must be relieved to get the green light, but don't forget it's in the right industry. The Beijing-based company became even larger in July 2016 after it bought the web-browser business of Norway's Opera Software ASA.

Next up could be WuXi AppTec Co., formerly known as WuXi PharmaTech Cayman Inc., according to the South China Morning Post. China's biggest contract medical researcher was delisted in 2015 in a $3.3 billion transaction.

Others that may have to cool their heels include Shanda Games Ltd., and Dalian Wanda Commercial Properties Co., which delisted from Hong Kong in 2016. Dalian Wanda was 53rd in the queue for a Shanghai listing in August but has since slipped to 57th -- testimony to Beijing's reluctance to open the doors to developers (though Wang Jianlin's debt-fueled offshore acquisitions probably haven't helped).

Wanda investors don't need to sweat too much -- they were promised a 12 percent return if the company wasn't re-floated by September 2018 -- but shareholders in other companies aren't so fortunate. Turns out shopping around for a better deal doesn't always pay dividends.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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