Chinese bid for Chicago exchange bumps into roadblocks - Shaun Rein

Shaun Rein

A Chinese bid for the Chicago Stock Exchange is running into major roadblocks, both in China and the US. The bidder the private Chinese company Chongqing Casin Enterprise Group might have waited too long, says business analyst Shaun Rein in the South China Morning Post. Both in China and the US barriers seem too high to close the deal.

The South China Morning Post:

Starting Monday, all overseas payments under the capital account made through commercial banks in Shanghai that exceed US$5 million have to be submitted to Beijing for special clearance before proceeding, banking sources told the Post. 

“My guess is it will be very difficult for them to get approval. The Chinese government is cracking down on capital outflow... particularly on companies that are buying assets offshore that are not in their core areas of expertise,” said Shaun Rein, managing director of China Market Research. 

“Too many real estate and other firms are buying assets that they know nothing about and clearly this is viewed as a way to transfer yuan out and evade capital controls,” he added... 

Analysts said the updated information about the deal was meant to ease concerns raised by US lawmakers in February when the planned sale was announced, about Chinese companies taking control of the US bourse and gaining access to confidential information. 

“The Chinese have been looking to buy into the Chicago bourse for quite a while now,” said Rein. “There is good cash flow and if the equity markets do better then there is a lot of money to be made. But a lot of lawmakers in the United States complain about a stock change being owned by the Chinese and worry over it being owned by companies or parties related to the Chinese government.”

More in the South China Morning Post.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.

Are you looking for more strategy experts at the China Speakers Bureau? Do check out this list.  

Chicago Stock Exchange, a substandard avenue to capital? - Paul Gillis

Paul Gillis

The sale of the 134-year old Chicago Stock Exchange (CSX) to a consortium of Chinese companies led by Chongqing Casin Enterprise Group might just a way to capital for companies who cannot meet the standards of the NYSE and Nasdaq, warns accounting professor Paul Gillis on his weblog.

Paul Gillis:

US markets, particularly NASDAQ and the NYSE were until recently the preferred listing venues for privately owned Chinese companies. US exchanges were preferred over Chinese exchanges because they provided greater regulatory flexibility and good valuations. Consequentially, hundreds of Chinese companies sought listings in the US, many of which came to market as reverse mergers that were lightly regulated. Many of these listings collapsed in a wave of accounting frauds, and NASDAQ and the NYSE tightened listing requirements in a way that stopped the use of reverse mergers. 

Recently, however, Chinese exchanges have offered significantly higher valuations (even after the recent major correction) and China’s new third board offers a light regulatory touch for smaller Chinese companies seeking capital. 

My concern is that the main reason I see for a Chinese company to list on the CSX or NSX is to avoid the tougher regulatory requirements of the NYSE, NASDAQ, and the Chinese exchanges. What kind of company wants to avoid tougher regulation? Fraudulent ones, too often I fear. 

I understand that the CSX deal will require CFIUS and SEC approvals.  US regulators should not approve the deal unless the CSX agrees to adopt the seasoning rule that has helped protect investors from fraudulent reverse mergers on the NYSE and NASDAQ (and killed reverse mergers in the process).  Regulators might also insist that the auditors of any companies listed on these exchanges be subject to PCAOB inspections, a matter that PCAOB and Chinese regulators have been unable to agree upon.

More on the ChinaAccountingBlog.

Paul Gillis is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you looking for more experts to help manage your China risk? Do check out this list.  

Related articles

• China group to buy Chicago Stock Exchange
• UPDATE: Chinese-led investors plan to buy Chicago Stock Exchange