First of NYSE-Delisted China Stocks Launches Asian Offering

China Firm Preps for Hong Kong IPO

First of NYSE-Delisted China Stocks Launches Asian Offering


Updated Feb. 14, 2014 6:47 a.m. ET

HONG KONG—Two years ago, as Chinese companies listed in the U.S. battled a perception for being weak, or were tainted with fraud, many Chinese companies were taken private by their owners. Now, 15 months after it was bought out by its founder, the former New York-listed Gushan Environmental Energy Ltd. is raising up to US$96 million in a Hong Kong initial public offering.

China Metal Resources Utilization Ltd. holds most of Gushan’s operating assets. Its chairman, Yu Jiangqiu, paid US$21 million to take Gushan private in October 2012, and is seeking to list China Metal in Hong Kong on Feb. 21, which would make it the first Chinese stock delisted in the U.S. in a wave of take privates in recent years to go public. If the copper recycling firm’s IPO succeeds, it could spark more deals.

When it listed as Gushan in 2007 on the New York Stock Exchange, the company was a biodiesel firm, producing fuel from feedstock. Over the years, it has expanded into copper recycling. Mr. Yu controls most of China Metal, which is based in the southwestern Chinese province of Sichuan. The company no longer produces biodiesel and is primarily focused on recycling copper into communication cables and power cables.

In its five years as a New York-listed firm, Gushan rode the wave of excitement and disgruntlement with Chinese companies, while the biodiesel industry lost favor among investors in the wake of the global credit crunch. Shares of Gushan, which went public at US$9.60 each following an IPO that raised US$185 million, saw its shares fall to lows of 81 U.S. cents in 2012, when most of revenue was already from its copper business.

When it listed in 2007, Gushan had a valuation of US$800 million; Mr. Yu took the firm private at a valuation of US$31 million, and if China Metal prices at the high end, the firm would have a valuation of US$325 million. The assets of the firm are valued at 10 times more than their value just over a year and a half ago. Mr. Yu has no plans to sell any of his shares in the Hong Kong IPO.

“It’s understandable that the owner is planning to relist somewhere he can get a better valuation for his assets,” said Matthew Kwok, chief strategist at China Yinsheng Wealth Management Ltd., which didn’t invest in China Metal’s IPO. “Two years ago, investors had no confidence in Chinese companies in the U.S., and so it’s not surprising they exited.”

China Metal is planning to raise up to US$96 million by selling 618.5 million shares in an indicative price range of one Hong Kong dollar (13 U.S. cents) to HK$1.20 per share. In its prospectus, the company says its net profit for the nine months to September 2013 grew 197% to 132 million yuan ($21.8 million). In its last results, Gushan’s net loss for the three months ended March 2012 narrowed to 2.1 million yuan from 17.5 million yuan in the previous year.

BNP Paribas BNP.FR -0.93% is handling China Metal’s listing.

Mr. Yu, 49 years old, founded Gushan in 2001. He received an Executive Master of Business Administration degree from Hautes Études Commerciales de Paris in 2010, according to China Metal’s listing prospectus.

In recent years, a growing number of U.S.-listed Chinese firms have been seeking to go private as accounting scandals weighed on the valuations of many of the firms, giving their largest shareholders, and private-equity firms, the chance to take the companies private at lower prices than they would have otherwise. While Gushan’s take-private was done solo by its founder, the list of private-equity firms that went in with founders to delist companies is long.

The largest-ever leveraged buyout of a Chinese company was done in this way: Carlyle Group CG +0.17% LP teamed up with a consortium of other private-equity firms and Focus Media Holding Ltd.’s founder to buy out the advertising firm for around US$3.7 billion. Late last year, the chairman of U.S.-listed Giant Interactive Group GA -0.27%teamed up with Baring Private Equity Asia to buy out the Chinese online game developer, valuing the firm at US$2.8 billion.

With prices of U.S. stocks on the rise, and a few Chinese companies recording stellar gains in their U.S. IPOs, many Chinese companies, especially in the Internet space, are looking to list in the U.S. again. Shares of online retailer Vipshop Holdings Ltd.VIPS -0.09% , which raised US$71.5 million in an IPO ahead of its March listing in the U.S. last year, closed at more than 17 times the IPO price Thursday.

But for non-Internet companies, Hong Kong is more alluring.

“The Hong Kong market is not seen to have a ‘China discount’ like in the U.S. and it is thought that investors here are more likely to understand and place a higher value on Chinese companies,” said Paul Boltz, a lawyer with Ropes & Gray LLP. “The lower cost of being listed in Hong Kong and lower risk of shareholder litigation in comparison to the U.S. also contributes to interest in pursuing a Hong Kong listing.”

Mr. Boltz said, “There’s a perception that investors in the U.S. markets don’t understand or bother to fully appreciate the business models of many companies operating in China.”

Both Mr. Yu and China Metal couldn’t be reached for comment.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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