Homesickness Cure for Chinese Firm Stranded in New York
Shares of Chinese interactive-music company YY Inc. have plunged on new regulatory obstacles to privatization offers
China Securities Regulatory Commission said earlier this month that it is looking into the impact of foreign-listed Chinese companiesaiming to relist their shares in domestic exchanges. Dozens of overseas-listed Chinese firms, in New York and Hong Kong, have kicked off a wave of “going-private” deals in hopes of cashing in on higher valuations on mainland stock markets. Shares of companies that have received such buyout offers have tumbled.
But that has created opportunities, such as online interactive-music site YY Inc., which dropped 20% this week. The investor group, which includes smartphone maker Xiaomi’s founder Lei Jun, that intends to take the company private has halted the $2.5 billion plan.
People have photos taken with a replica of the famous Wall Street bronze bull on the Bund in Shanghai. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES
YY trades 34% below the $68.50 take-private offer price, meaning the market places little hope that the offer will be revived. But in fact, the investor group has only temporarily put the plan on hold and could restart the plan once the current uncertainties go away.
And it isn’t far-fetched to think a deal could happen eventually. The major concern of the CSRC is that the homeward companies are relisting in the domestic markets at sky-high valuations that could hurt local investors. YY trades at 15 times earnings in New York, and thus has a lot of room to make a profit out of the delist-and-relist exercise without getting on the nerves of the regulator. The Shenzhen growth enterprise board trades at an average 65 times.
And even if the deal was scrapped, YY’s cheap valuation provides protection. The stock trades near its lowest point since 2013 even though revenue has tripled since then, while net income has more than doubled. In fact, many considered the go-private proposal a lowball offer. Analysts on average gave the stock a target price of $83, 21% higher than the offer price and 84% above its current price, before the offer came out last July.
Even if it isn’t going home right away, YY can still make the most of what New York has to offer.
http://www.wsj.com/articles/homesickness-cure-for-chinese-firm-stranded-in-new-york-1463136790
