Duff & Phelps at the Forefront in Financial Advising for Chinese ‘going-private’ Firms

By Selena Busso

There has been a rise in the China-based companies Going-Private Transactions Since 2011. The premier global financial advisory firm, Duff & Phelps, says that in the last four years, more than 50 Chinese companies which had formerly been listed in the U.S. have been taken private mostly by a controlling shareholder. Despite the recent rumble in the Chinese stock market, it is viewed as a lucrative destination for valuation firms.

Duff & Phelps has been eyeing the Chinese market ever since it opened up its branch in Shanghai, Hong Kong and Beijing in June 2008.

Duff & Phelps, the premier global valuation and corporate finance advisor with expertise in complex valuation, including in dispute context, says that there has been more than 50 China-based U.S.-listed companies that have got involved in going-private transactions.

At present there are more than 250 China based companies that trade in the major stock exchange in the US. Many of the above mentioned companies can be potential targets for considerations for going-private transactions.

There are hundreds of other Chinese companies that are trading in the U.S. as penny stocks,” says a document of the firm referring to the prospect of Chinese firms going private. The primary reason for this that the relative valuations of the Chinese firms that are operating on the US stock exchanges are much lower when compared to the Chinese companies listed on either the Hong Kong, Shanghai or Shenzhen exchanges.

Sammy Lai, Managing Director and Country Leader of Duff & Phelps’ valuation operations in Greater China and with more than 15 years of valuation, direct investment and project finance experience in the Asia Pacific region says: “standard corporate governance in going-private transactions like these calls for a special committee – with the assistance of an independent financial advisor – to negotiate with the controlling shareholder. In addition to rendering a fairness opinion, the financial advisor might also conduct a market check or execute a go-shop provision, which can improve the process”.

Analysts at Duff & Phelps estimate that the Chinese going-private trend is likely to continue through 2015-2016 since there are more than 200 Chinese stocks trading over the counter and nearly 140 listed on NYSE and NASDAQ.

Another reason cited for the continuing trend is the influx of private equity firms and international banks into China and the Asia-Pacific region coupled by regional banks like the China Development Bank, that are willing to finance these buyouts as a policy to bring ownership “back home.”

Other peripheral factors cited by Duff & Phelps in a report on the issue published some months ago include the ongoing economic crisis, regulations imposed upon U.S.-listed companies and the accounting fraud allegations involving companies based in mainland China.

“These factors all combine to create an environment where a China-based company may opt for a shift to private ownership or become the target of a going-private proposal from an insider group or consortium,” notes the Duff & Phelps report.

This year Duff & Phelps has partnered several Chinese companies in their effort to go private while others have retailed their services as financial advisors.

Even as the surging stock-market volatility in Shanghai continues and a rout wiped out as much as $4 trillion in market value, it has not stopped the record flow of going-private offers for U.S.-traded Chinese companies.

Since the pace of buyout offers accelerated in the first half of this year, the stocks on the Shanghai Composite Index have surged as much as 60 percent. This has made it attractive for companies to shift their stock listings to China from the U.S.

“The booming stock market in the first half of this year really accelerated the process,” David Lu, head of China corporate finance at Duff & Phelps said. Duff & Phelps is currently advising nine going-private deals that include E-House China Holdings.

Financial Advising is one of the core business capabilities of Duff & Phelps and the company has a rich history of providing the most unbiased financial advice through its process of recruiting the champions specialized by industry and application of its client-care-oriented ethics.

In August this year, the Vimicro International Corporation, a leading video surveillance technology and solution provider, had retained Duff & Phelps as their financial advisor after a special committee of independent directors of the Company’s board of directors agreed for the same. Vimicro International Corporation provides a full range of video surveillance products and solutions to governments, private enterprises, and consumers in China.

Another important going-private Chinese company is the e-Commerce firm China Dangdang Inc. whose special committee of the Company’s board of directors also retained the services of Duff & Phelps as its financial advisor. “The firm’s (Duff& Phelps) more than 2,000 employees serve a diverse range of clients from offices around the world. As experts in complex properties, Duff & Phelps assist clients by identifying and capitalizing on available tax benefits and incentives. Duff & Phelps has the expertise to advice in a variety of areas that are important to our success,” said a communiqué while announcing the retention of Duff & Phelps’s services.

Other notable Chinese companies going private include the China Information Technology, Inc., a leading provider of integrated cloud-based platform, exchange, and big data solutions in China, trying to go-private will take professional help of the expertise of Duff & Phelps. The China Information Technology, Inc. provides cloud-based platform for exchange and big data solutions in the fields of education, health care, new media, finance and transportation sectors.

Other Chinese companies taking expert advice from Duff & Phelps include eLong, Inc., a leading mobile and online travel service provider in China. This company too is following up on its review and evaluation of the previously-announced non-binding “going private” proposal from Tencent Holdings Limited.

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