Portfolio | China ADRs' journey home looks complicated after equity rout

The homecoming of Chinese firms delisting in the US who are striving to list their shares on the mainland is becoming more time-consuming and complicated after the rout in equities last month.

The biggest “bull run” in the A share market, with the key Shanghai Composite index jumping as much as 150 per cent within one year between June 2014 and June 2015, has pushed up the valuation of many technology firms in Beijing.

The boom had lured as much as 25 firms listed in the US in the form of American Depositary Receipt (ADR) to go private with a total deal value exceeding USD$27 billion, and these firms are aiming to list back on the mainland for higher valuation and better liquidity, according to a note sent by HSBC to its clients.

However, this move is running into unexpected bottlenecks after the mainland equity market crashed by up to 30 per cent, prompting Beijing to suspend the approval process of initial public offerings to avoid additional pressure on the market.

“We expect the trend for Chinese ADRs homecoming will continue, but the recapitalization process will be complicated and time-consuming,” said HSBC analysts led by Roger Xie.

“There have been 25 Chinese ADRs going private so far, but the A-share sell-off and temporary freeze on IPOs cause uncertainty and the privatization process can take time.”

Chinese ADRs need to go through a lengthy privatization process usually lasting from six months to two years, HSBC said.