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| China rules on offshore listing shrink IPO pool | |||||||||
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(SINGAPORE) Bankers and lawyers are still grappling with regulations introduced over a year ago in China to limit the number of Chinese companies that could list on offshore bourses, like those in Hong Kong, New York or Singapore. The regulations, which came into effect on Sept 8, 2006, require Chinese firms wanting to sell shares abroad to obtain approval from the China Securities Regulatory Commission (CSRC). So far, according to lawyers, a single applicant has got the green light - and they say this will not change for the foreseeable future. 'They've turned off the tap,' said Bernard Lui, a director at Stamford Law who works with Chinese firms seeking to list in Singapore. So where are the China IPOs (initial public offerings) we see coming from? Take a close look at their country of incorporation - chances are it will be Singapore, Bermuda or the Cayman Island. In other words, anywhere but China. Virtually all overseas listings of Chinese assets are via offshore vehicles, or Wholly Foreign Owned Enterprises (WFOEs), set up before the September 2006 regulations kicked in. Business owners incorporated a WFOE outside China and sold the operating assets in China to the vehicle. They can now list the vehicle, which is not governed by Chinese rulings. But following the rule changes, Chinese firms that want to restructure and use a WFOE to acquire their assets in China must also get the CSRC's stamp. According to Joseph He, senior foreign law consultant at Wong Partnership, the CSRC will refuse approval if - after all the hand waving - the original shareholders of the Chinese firm end up with a majority stake in the new foreign entity. 'I don't think there are any legally effective ways to restructure,' he said. This is not for lack of trying. Sources say one method to circumvent approval is to use an auction to sell off the operating assets. After the new owner lists or completes a reverse takeover (RTO), if the assets meet certain performance targets, the new owner issues shares to the original shareholders. But the Sept 2006 rulings are broad enough to catch these attempts, said Mr He. 'We've seen proposals of all types for restructuring, all for the same purpose of getting around Chinese regulations, but it's very difficult.' So, Chinese firms hungry for capital must hunt for alternatives. One is to list on the local exchanges - after which a firm is allowed to dual list on an offshore exchange. But waiting times for a Shanghai or Shenzhen listing are up to 12 months or longer, said Aloysius Wee, head of China practice at Central Chambers Law Corp. And unless a firm is a large SOE, it is unlikely to have the clout for a dual listing. Chinese firms are also turning to RTOs, he said, so the market value of potential shell companies have gone up two or three fold. But the Sept 2006 rules also govern mergers and acquisitions, so RTOs involving listed foreign vehicles still need CSRC approval. A third way is to register as a company limited by shares in China and then sell S-shares in Singapore - like Fujian Zhenyun Plastics Industry did in July. But this subjects the firm to other criteria, such as selling no more than 25 per cent of registered capital to foreign shareholders. All this means bankers looking for prospective IPO candidates are limited to Chinese firms that successfully restructured prior to Sept 2006. Opinions differ as to whether there are many of them left. The SGX maintains that it is 'still receiving applications' for China listings. There are a 'fair number' of firms that restructured before Sept 2006 and 'we are told by bankers that they are still working on deals', said its head of listings, Lawrence Wong. Others, like Khong Choun Mun, head of investment banking at HL Bank, are less sanguine. 'No one really knows how many PRC companies were restructured, which is why you still see quite a number of PRC companies listing overseas. 'However, we do believe the pool is shrinking and that over time the numbers will decline,' he said. China-based firms accounted for 23 out of the 43 new mainboard listings so far this year, and about half of all new listings last year. Tan Huay Lim, audit partner and head of IPO Services at KPMG Singapore, believes there would be more of them if not for last year's rule changes, but does not think supply will dry up. Many firms presently too small for a listing were restructured prior to Sept 2006 - for other reasons - and China's strong growth means they will eventually grow large enough to qualify for IPO, he said. In South China, such as Fujian province, many firms were restructured before Sept 2006, he added. Another question is whether China will repeal the regulations or relax its stance on approvals any time soon. Many thought a repeal might emerge during the 17th Congress of the Communist Party of China, which ended last month. But that failed to happen. Pointing out that the regulations were jointly signed into place by six bodies, from China's Ministry of Commerce to its State Administrations for Taxation, Industry and Commerce, and Foreign Exchange, Mr Tan said they would be hard to abolish. 'If six agencies work together, they must have an important agenda', he said. Speculation is rife that the rules might be relaxed after the Beijing Olympics in 2008 if the Chinese economy slows down, but Mr Tan is again sceptical. Many important events will take place in the years after the Olympics - such as the 60th anniversary of the founding of the People's Republic of China in 2009 or the 5th World Expo in Shanghai in 2010 - so the the outlook will remain robust, he said. Others said it is best to understand why China made the changes in the first place. One reason was to prevent Chinese assets from being sold at low valuations to WFOEs, then listed at high prices offshore, transferring the value from domestic Chinese to foreigners, they said. China also wanted to spur growth of its domestic exchanges, and to control the inflow of foreign investment to reduce pressure on the yuan to appreciate, reasons which still stand |
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those who have listen to my call last week has enjoyed the ride and make some money today.
idesa168,
12.5c as strong support level might be too early to determine...but if can get in at that price & hope for a rebound will be risky.
I'll agree with $$$, there are many great counters out there.
cashiertan,
U are a noti fella...made me overlook & post in the wrong joojoo. Lucky dint get any summons, yet...haha...
harryp,
Pension is guy or gal? I thought all along he is a he. Look for husband??? Gosh..is he / she ok? Or a shim?
I have made$ and lost$ and made$ and lost$ with this Joojoo so many times...
The final result is a net loss$.
This is not an easy stock to play... so I will not touch this stock any more...
There are many other great stocks...
