On October 3, China Huaneng board of directors and China Huaneng new energy board jointly announced that CLSA, on behalf of China Huaneng, confirmed that it intended to make a voluntary conditional cash acquisition offer to acquire all H shares issued by Hong Kong listed company Huaneng new energy at a price of HK $3.17 per share, a 46.08% premium to the previous closing price of HK $2.17 on the last trading day.
The privatization of China Grain and oil holding is also a high premium acquisition. The privatization plan of COFCO group, its controlling shareholder, shows that the offer price is HK $4.25 per share, about 34.07% higher than the latest closing price of HK $3.17.
According to the announcement of China Grain and oil holding, the reason for COFCO to propose privatization is that the financing function of the company as a listed platform is limited. COFCO believes that in recent years, the global economic growth slowdown and other peripheral factors have brought certain uncertainty to the development of Chinas grain and oil holding, resulting in weak stock price trend and limited financing capacity of the company. It is difficult to provide available capital sources for its business development through equity financing and provide support for the companys development strategy.
The reasons for privatization of the three companies are basically similar, especially Huaneng new energy. Since August 2018, its market to book ratio (book to book ratio) is lower than 1, which has been unable to further raise capital in the equity capital market. More than that, since this year, there have been more than 10 privatization proposals in the Hong Kong stock market, including Huaneng new energy, Huadi international holding, AVIC international holding, Harbin Electric, TPV technology and other companies which have been privatized by major shareholders. The future of these companies, to varying degrees, point to the A-share market.
There have been many cases of Hong Kong listed companies returning to a shares after privatization. Two years after the delisting of Hong Kong shares, Huaxi biology landed on the science and technology innovation board on November 6, 2019, embracing a new round of capital dividends. The market value of the company on the day of listing was more than 40 billion yuan. China Resources Microelectronics was delisted from Hong Kong stock market in the form of privatization in 2011. This year, it also chose the IPO of science and technology innovation board, and became the first red chip company to enter the registration link of science and technology innovation board.
GUI Haoming, chief market expert of Shenwan Hongyuan Securities Research Institute, told the Securities Daily that the current market performance of a shares is not good. From the perspective of market trend alone, it is Hong Kong shares and overseas markets that perform better. However, in the long run, it is advantageous for Hong Kong stock companies to choose A-share listing after privatization, because although IPO of A-share is relatively strict, the price earnings ratio of issuance is generally high, which is more favorable for the returned companies. Therefore, for many high-quality companies, the first choice is A-share listing, if not successful, then choose other overseas markets.
The common feature of these listed companies that issued privatization proposals is that they broke the net value for a long time and had low valuation, and their equity financing is limited. If they choose A-share listing, they naturally expect to obtain financing support from A-share. Xu Yang, chairman of Shanghai maikerong Information Consulting Co., Ltd., told Securities Daily that although high-quality companies are welcome to return in terms of national policies, and A-share market can also give high valuation, the financing environment in the mainland is not optimistic at present. In the long run, from the perspective of valuation and policy, it is favorable for the return of China equity, but at present, A-share is unfavorable for the capital of these companies with privatization return. At present, the IPO audit has been normalized, which leads to the intensification of the stock capital game, while the incremental capital is still on the way. In the future, the return of medium cap stocks may also encounter problems such as difficult issuance and financing.
Xu Yang said that whether the enterprises qualification is good or not is an important standard to return to A-share. Taking China Grain and oil holding as an example, although it has hundreds of billions of assets, most of them are property, plant and other assets. The average return on assets is below 10% for a long time, and the annual profit of the enterprise is only over 1 billion yuan, which is difficult to obtain a better market in the Hong Kong stock market with strict valuation standards Identification. But even so, it is not easy for such companies to return to the A-share market after privatization, because the current policy prefers the return of technological innovation enterprises.
Fu Lichun, director of Northeast Securities research, told Securities Daily that the reform of registration system in science and technology innovation board is the key direction of A-share, and it will move forward to marketization in the future. The premise is to improve the quality of listed companies. Only high-quality zhonggai companies have the opportunity to return to A-share. It is well known that the valuation of a shares is high, but the requirements and strictness of IPO are even higher than those of some overseas capital markets. For the return of privatization of zhonggai stock, we must make a choice according to the industry and development stage of the enterprise. The road to return to A-share is not so easy.
Source: responsible editor of Securities Daily: Yang qian_nf4425