China considers curbs to contain tech bubble
The Chinese Securities Regulatory Commission is debating whether to impose measures on the surge of domestic businesses looking for backdoor listings in the equity market. Measures include capping valuation multiples, restricting reverse mergers and the introduction of a quota to reduce the number of these mergers from companies who trade overseas. The commission's main concern is that the valuations proposed by these companies for backdoor listings are too high, thus affecting the stability of the stock market. Furthermore, the government is keen to prevent an influx of buyouts that could trigger an outpouring of fund outflows that increases devaluation pressure on the Chinese Yuan.

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China's stock regulator is considering measures to curb the flow of overseas-traded Chinese companies seeking backdoor listings in the domestic equity market, people with knowledge of the matter said.The China Securities Regulatory Commission is weighing possible restrictions on reverse mergers, including capping valuation multiples for deals involving companies that previously traded overseas, according to the people. Another option being discussed is introducing a quota to limit the number of reverse mergers each year from companies formerly listed on a foreign bourse, the people said, asking not to be identified as the information is private.Chinese regulators are concerned the valuations mooted for some domestic backdoor listings are too high and could affect the stability of the stock market, the people said. The government also wants to avoid encouraging more buyouts that could prompt a wave of fund outflows and increase depreciation pressure on the yuan, the people said.At least 47 US-traded Chinese companies have received buyout offers totalling $42.6 billion since the start of last year, lured by the prospect of relisting at a higher valuation in Shanghai or Shenzhen, data compiled by Bloomberg show. Any new regulations could affect companies like US-listed security software maker Qihoo 360 Technology Co, whose $9.3 billion buyout is still pending after it signed a definitive deal agreement in December."The A-share market has not stabilised yet, and the government is worried that the return of companies with stronger brand names will suck in a lot of liquidity from smaller companies," Ronald Wan, chief executive officer of Partners Capital International in Hong Kong, said by phone Tuesday. "They are very cautious and sensitive to anything that will affect stability in the market at the moment."The stock regulator said Friday its conducting "in-depth analysis and research" on the impact of Chinese companies seeking to relist domestically after delisting from overseas markets. Speculation in shell companies used for backdoor listings requires attention, CSRC spokesman Zhang Xiaojun said at a briefing in Beijing, without providing further details.Any cap on reverse merger valuations would temper investors' expectations for quick gains from wealth-management products tied to domestic relisting's, according to one person with knowledge of the matter. Billionaire Wang Jianlin's Dalian Wanda Group Co is guaranteeing a 12 per cent annual return to wealthy domestic investors willing to join the proposed buyout of its $29.9 billion commercial property arm listed in Hong Kong.Potential changes to rules governing how overseas-traded companies relist on a Chinese exchange are part of a broader discussion among regulators on how to manage all backdoor listings, the people said. The CSRC has held talks with investment banks and other market participants to gauge their views on the potential curbs, the people said.China's securities regulator is still weighing its options and hasn't decided which of the possible rules will be implemented or when they will be introduced, according to the people. The CSRC didn't immediately respond to a faxed request for comment.Outdoor advertising firm Focus Media Holding Ltd. and online game developer Giant Interactive Inc. are among companies that have gained domestic listings through reverse mergers, which can help get around the long waiting list for initial public offerings in China.Developer Evergrande Real Estate Group Ltd. has also taken steps to move it closer to potentially switching its stock market listing to China, while Autohome Inc.'s chief executive is leading a group of investors that last month offered $3.6 billion to take the Chinese car website private, data compiled by Bloomberg show.