Chinese companies get out of US Stock Market

Chinese don’t want to be overseen by US auditors

ASSOCIATED PRESS | AUGUST 14, 2012

Just a few years after Chinese companies lined up to sell shares on Wall Street, a growing number are reversing course and pulling out of U.S. exchanges.

This week, Focus Media Holding Ltd., announced its chairman and private equity firms want to buy back its U.S.-traded shares and take the Shanghai-based advertising company private. The deal would value Focus Media at $3.5 billion, according to financial information firm Dealogic.

Smaller companies also are withdrawing from U.S. exchanges. In a sign of official encouragement, a Chinese business magazine said a state bank has provided $1 billion in loans to help companies with listings abroad move them to domestic exchanges.

The withdrawals follow accusations of improper accounting by some companies and a deadlock between Beijing and Washington over whether U.S. regulators can oversee their China-based auditors.

Some Chinese companies say they are pulling out of U.S. markets because a low share price fails to reflect the strength of their business. Withdrawing also eliminates the cost of complying with American financial reporting rules.

Focus Media “has been seriously undervalued on U.S. stock markets” and being taken private will help to promote its “long-term strategic development,” said a company spokeswoman, Lu Jing.

The company, formed in 2003, operates electronic advertising displays in elevators, grocery stores and other locations.

“We haven’t considered whether to list the company on Chinese markets but that possibility has not been excluded,” Lu said.

U.S.-traded Chinese companies faced scrutiny after auditors for several quit and others were accused of accounting irregularities. Concerns about company finances have caused share prices to tumble, costing investors several billion dollars.

“Probably all these companies have some questionable accounting, so they may prefer to move out of the U.S., not to come under too much scrutiny,” said Marc Faber, managing director of Hong Kong fund management company Marc Faber Ltd.

A financial firm, Muddy Waters Research, accused Focus Media last year of overstating the number of its display panels and questioned acquisitions reported by the company. Focus Media denied the allegations and said independent auditors confirmed the size of its network.

This week, Muddy Waters founder Carson Block said in a statement: “The markets are far better off if a few deep pocketed investors own Focus Media instead of mutual funds and other public shareholders.”

The group proposing to take the company private includes its chairman, Jason Nanchun Jiang, and private equity firms Carlyle Group, CITIC Capital Partners, CDH Investments and China Everbright Ltd.

The status of Chinese companies in the United States could be complicated by a dispute between U.S. and Chinese regulators over whether American inspectors will be allowed to examine the work of their China-based audit firms.

Washington wants auditors to hand over documentation on companies that are under investigation but Chinese authorities have barred the release of some information. If a settlement is not reached, the SEC could reject audits by China-based firms, forcing companies to find new auditors.

In May, Beijing took steps to tighten control of local affiliates of major accounting firms by issuing a requirement for Chinese citizens to head those offices.

Dozens of Chinese companies issued shares on Wall Street over the past decade, raising billions of dollars from investors who wanted a stake in the country’s booming economy.

Many were private companies that could not raise money on Chinese exchanges that were created to finance state industry or wanted the higher public profile.

Chinese regulators encouraged the move as a way for entrepreneurs to raise money and speed the development of China’s economy. But in recent years Beijing has encouraged private companies to issue shares in China to help develop its markets and give Chinese households better investment options.

Regulators have made it easier for private companies to join China’s two exchanges in Shanghai and the southern city of Shenzhen, though most listings still are for state enterprises. The Shenzhen exchange created a second board for small companies, imitating the U.S.-based Nasdaq market.

Major state companies such as oil giant PetroChina Ltd. and China Mobile Ltd., the world’s biggest phone company by subscribers, also have issued shares abroad. None has indicated it plans to withdraw from foreign stock exchanges.

The economics also are shifting in China’s favor.

U.S.-traded companies saw share prices plunge following the 2008 global crisis, while economic growth at home, even after a recent decline, is still forecast at about 8 percent this year. Rising Chinese incomes are creating a bigger pool of money for investment.

“Generally speaking, a company’s shares are sold at a higher premium in initial public offerings on Chinese stock markets than on U.S. markets,” said Mao Sheng, a market strategist for Huaxi Securities in the western city of Chengdu.

Also, he said, “If the company’s business is mainly in China, it will be good for its brand promotion.”

Another U.S.-traded company, Fushi Copperweld Inc., announced plans in June by its chairman, Li Fu, and a Hong Kong firm, Abax Global Capital, to take the maker of metallic conductors private.

Muddy Waters cited Fushi Copperweld in April as one of several companies it said dealt with an investment bank that helped enterprises seeking U.S. stock market listings to conceal problems and misrepresent financial information.

Fushi Copperweld denied Muddy Waters’ “vague and nonspecific” claims.

The company said its privatization will be financed with loans from the China Development Bank.

Created to support construction of highways and other public works in China, CDB plays a growing role in its corporate expansion abroad. The bank provides credit to buyers of Chinese telecoms gear and other big-ticket goods and has financed building projects in Africa, Latin America and Asia.

CDB has lent $1 billion “to help Chinese public companies leave the U.S. stock market to return to domestic markets,” the business magazine Caixin said last month.

Employees who answered the phone at Fushi Copperweld said no one was available to comment.

Also in June, China TransInfo Technology Corp., a provider of traffic management technology, announced privatization plans to be financed by CDB’s Hong Kong branch. A company spokeswoman said she could not comment because the plan is not finalized.

In October, Harbin Pacific Electric Co. withdrew from Nasdaq in a share buyback financed by $400 million in loans from the CDB.

European Central Bank acts to prop up debt of Italy, Spain

By Anthony Faiola
Washington Post
August 8, 2011

LONDON—Moving to stem panic of an escalating debt crisis in Europe, the European Central Bank on Sunday signaled it would intervene in bond markets to prop up hard-hit Italy and Spain, as world leaders scrambled to calm investors before the opening of financial markets Monday.

The reluctant decision by the ECB underscored the gravity of a crisis that some fear could lead to a messy breakup of the euro zone if not quickly contained, and which has gathered fresh urgency following the downgrading of U.S. debt by Standard & Poors.

Worried investors have been dumping Italian and Spanish bonds, driving their borrowing costs to record levels in recent days and sparking fears the world’s 7th and 12th largest economies could be engulfed by the same kind of crisis that forced far smaller Greece, Ireland and Portugal to request emergency bailouts. By intervening in bond markets, however, the bank could at least temporarily take some of the pressure off both nations by buying debt that private investors now see as too risky.

The ECB, as is customary, did not explicitly say it would buy Italian and Spanish bonds. But it strongly suggested in a statement that it would do so, with its move amounting to an admission that the bank’s tepid dabbling in bond markets last week did not go nearly far enough in calming investors. The bank’s governing council agreed after an 11th-hour emergency teleconference on Italy and Spain to take more drastic steps “to ensure [bond] price stability in the euro area.”

The move came as European leaders Sunday were scrambling to calm investors jittery over the crushing debt of wealthy nations. Without further steps from governments and central bankers, analysts fear more drops in global stock markets – with bourses in the Middle East, open on Sunday, tumbling ahead of the opening of key Asian trading.

A European official who declined to be named given the sensitivity of the issue said “a range of international discussions” was coming together Sunday. Those talks were set to include conference calls between G7 financial chiefs.

German Chancellor Angela Merkel and French President Nicholas Sarkozy issued a joint statement backing moves by Rome and Madrid on Friday to speed up austerity measures and adopt reforms to improve stagnant growth.

Opposition in fiscally conservative Germany, by far the largest economy in the 17-nation euro zone, to intervention by the ECB was seen as one major factor holding the bank back. But the ECB, in the text of its statement Sunday, appeared to interpret Merkel’s joint statement with Sarkozy as a sign of grudging acceptance from Berlin that more must be done.

With concern increasingly centered on Italy, whose debt amounts to a whopping 119 percent of its national economy, Merkel and Sarkozy “especially” welcomed the announcement by Italian Prime Minister Silvio Berlusconi “to achieve a balanced budget a year earlier than previously envisaged.”

Raj Badiani, an economist with IHS Global Insight in London, called the ECB move “an attempt to provide a sharp jolt to the negative sentiment engulfing Spain and Italy.”

But he and others warned it may only be a short-term solution. The ECB cannot indefinitely intervene in European bond markets on such a grand scale. A program that goes on too long could trigger inflation and undermine the stability of the euro. Rather, the ECB may effectively be buying time for European leaders to do something they have thus far failed to do — take decisive action to end the crisis.

Analysts have been calling for European leaders to greatly expand a bailout fund to cover a worst-case scenario in Italy and Spain. But European leaders were doggedly sticking to a July 21 agreement that once again shored up Greece while also allowing rescue funds to be used to buy up the bonds of troubled nations in times of crisis, much like the ECB.

But the pool of cash available, about $616 billion, does not approach the level needed to aid Italy or Spain, and European leaders have showed no signs of agreement in raising that amount. In addition, all 17 nations in the euro zone still need to ratify that deal before it can go into effect.

Europe, led by Germany, has bailed out Greece, Ireland and Portugal. But German voters have had it with bailouts, and in a worst-case scenario Italy would need roughly $1.4 trillion — or more than double the size of the current European rescue fund.

Rather, Europeans leaders and the ECB seem to be banking on temporary intervention to give Italy and Spain time to make good on their pledges to restore market confidence through budget cuts and long-awaited economic reforms.

“I suspect it could help to stabilize Italian bond yields at current levels, and help to deflect some of the financial contagion hitting Italy,” Badiani said. “However, we will need to see much more detail about the scale of the proposals and the pace of implementation before there is any significant unwinding of the bond yield rises of the past month.”

If Italy or Spain fails to quell market panic, analysts say, Europeans might be forced to move toward the advent of a new euro-bond, putting the economic weight of Germany behind its profligate neighbors. But Germany and other northern European nations remain opposed to such a deal, as well as the more radical step of a more established fiscal union that would go further in turning a vast chunk of Europe into one giant economy.