CHINESE firms domiciled in offshore havens and listed on U.S. stock exchanges are buying out their shareholders at low-ball prices, according to a report published Tuesday, taking advantage of a regulatory gap within their jurisdictions.

    Since 2015, 38 Chinese companies listed in the United States have announced management buyout offers, with around half seeking to go private well below their initial public offering (IPO) price, says the report, produced by Hang Ren Partners LLC, a Boston-based research firm.

    Because investors in these offshore-based companies hold American Depositary Receipt (ADR) shares, they lack certain shareholder rights, the report says.

    “Unlike with buyouts by U.S. firms, ADR holders have little to no recourse to challenge low-ball offers,” said Hang Hen Managing Partner Peter Halesworth.

    The report also points out the trend of Chinese companies buying out U.S. shareholders, delisting their stock, and then reaping an even bigger windfall through a new offering in China. So far we have witnessed spectacular windfalls. The report used China Mobile Games and Entertainment Group Ltd., 3SBio Inc. and Focus Media Holding Ltd. as examples of Chinese companies that delisted in the United States, only to raise larger offerings in China shortly afterward.

    In Focus Media’s case, the company went from raising US$3.7 billion after a management buyout in 2013 from the NASDAQ exchange to raising nearly double that amount in a China listing two years later, the report says. (SD-Agencies)