China  to US-listed Chinese Companies:  Come Home


China Development Bank, the state-owned lender known for funding infrastructure projects like the Three Gorges Dam, is providing more than $1bn to help small Chinese companies leave the US stock market, according to Bloomberg.

Beyondbrics can’t help but wonder whether CDB’s foray into the US has something to do with the political battle between Washington and Beijing over cross-border regulation of accounting firms.

This from Bloomberg:
    The nation’s biggest policy lender has offered funding so Fushi Copperweld, a Beijing-based wire maker listed on Nasdaq, can buy back its shares from the public, the company said last month. China TransInfo Technology said June 8 it would drop its US listing with CDB financing. The bank has provided more funding than any other lender to help the nation’s companies exit the world’s biggest equity market, according to Roth Capital Partners, which specializes in emerging markets.

So what’s going on? Recall that dozens of US-listed Chinese companies have been accused of fraud and accounting misstatements over the past two years and that the entire sector has suffered as a result.

It seems reasonable to assume that CDB’s funding of share buy-backs has more to do with politics than commercial gain. As CDB’s own mission statement puts it, the bank supports ”the state’s medium-to long-term development strategies and policies”.

Recall that China is locked in a spat with the US over auditing standards. Washington is fuming about the level of fraud at US-listed Chinese companies and wants the Securities and Exchanges Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) to be able to inspect Chinese accounting firms. Beijing has refused.

Tensions are mounting. Paul Gillis, a Beijing-based accountancy expert, says there’s only a 10 per cent chance that the regulatory issues will be quickly resolved, a 70 per cent chance that the arguments will be “kicked down the road”, and a 20 per cent chance of a political bust-up that ends with Washington forcing the delisting of all US-listed Chinese stocks.

“I believe that it is China’s intent to end the use of overseas stock markets by Chinese companies,” Gillis says on his blog.

“Zhou Qinye of the Shanghai Stock Exchange voiced this sentiment last November when he suggested that a solution to the standoff with foreign regulators would be for the US-listed Chinese companies to come home and list.”

This is where CDB springs into action. After all, who else would be willing to provide debt funding for the complex, risky process that is required to take a US-listed company private and re-list it in Hong Kong or Shanghai?

Viewed through a political lens, CDB’s lending spree looks a lot like a signal to Washington that China will not back down in the audit dispute. If Gillis is right, things could get very messy.

So far, CDB has put about $1bn into play. That’s already an impressive sum. But for a lender that has a Rmb5.5tn ($870bn) loan book and plenty more firepower, bringing more Chinese companies home shouldn’t be too difficult.