Business

Chinese companies pull out of US stock markets

Wednesday, August 15, 2012    

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BEIJING, China - 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 US exchanges.

This week, Focus Media Holding, announced its chairman and private equity firms want to buy back its US-traded shares and take the Shanghai-based advertising company private. The deal would value Focus Media at US$3.5 billion ($312 billion), according to financial information firm Dealogic.

Smaller companies also are withdrawing from US exchanges. In a sign of official encouragement, a Chinese business magazine said a state bank has provided US$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 US regulators can oversee their China-based auditors.

Some Chinese companies say they are pulling out of US 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 US 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.

US-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 US, 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.

The status of Chinese companies in the United States could be complicated by a dispute between US 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.

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