Shadow looms on overseas-listed Chinese companies' return plans

Plans by overseas-listed Chinese companies to relist on the A-share market are likely to face growing uncertainty, after the Chinese securities regulator said it is turning the spotlight on reverse mergers.

Market analysts say their hopes of returning to the Chinese mainland stock market have been dampened after the China Securities Regulatory Commission said it is conducting in-depth analysis of those looking to take control of listed shell companies, often called back-door listings, to avoid the lengthy process of an initial public offering.

Bloomberg quoted industry sources on Tuesday that the securities regulator was weighing up possible restrictions, including capping valuation multiples for reverse mergers involving companies that previously traded overseas.

Another option being discussed is introducing a quota to limit the number of reverse mergers each year, by companies formerly listed on a foreign bourse, it reported.

Vinsan Wang, a guest analyst with Beijing-based Tiger Brokers, said companies are now likely to see a sharp slowdown in relisting procedures, and suggested it could take at least two to three years, given there are already 600 to 700 companies believed to awaiting IPO approval.

While other experts said it was still too early to generalize on the impact, Wang said smaller loss-making companies will certainly face a tougher time relisting than larger counterparts with brighter business prospect.

"It is difficult to say how it will affect future developments, but institutional investors who backed these companies will certainly be considering the regulatory impact, and deciding whether to go ahead with any privatization process," Wang said.

An increasing number of overseas-listed Chinese companies have been seeking privatization and relisting on the domestic stock market, lured by much higher valuations offered by domestic investors.

At least 38 US-listed Chinese companies have announced privatization deals since 2015, worth a total value of $39.9 billion, according to financial data provider Dealogic.

Zhang Yidong, an analyst at Industrial Securities Co, said that the risks faced by overseas-listed Chinese companies are rising and that many could be forced to abandon their privatization plans or substantially lower their offer price.

Momo Inc, a Chinese social-networking app which announced privatization plans at an offer price of $18 per share, declined to comment when contacted by China Daily.

Its stock was trading at $13 on Nasdaq on Tuesday.

Contact the writers at lixiang@chinadaily.com.cn and mengjing@chinadaily.com.cn