In the news: Qihoo 360 goes private, 100% foreign ownership in e-commerce is now permitted and Uber and Didi Kuaidi raise billions to expand

Lawyers benefit from Chinese take privates

The flurry of Chinese companies delisting from US capital markets to head for Chinese exchanges was highlighted last week when Qihoo 360 announced that it would leave the NYSE and go private for US$9 billion, which trumps the 2012 US$3.7 billion offer for Focus Media. Kirkland & Ellis and Skadden are acting on the deal. The 38% and 94% surges in the Shanghai and Shenzhen stock indexes, respectively, this year appear much more attractive than the 8% and 2% for the Nasdaq and NYSE. This month alone, at least seven companies have received similar offers to go private, including US$673 million for Nasdaq-listed China Mobile Games and Entertainment Group. Gaming company Perfect World is going for US$1.1 billion and Wuxi PharmaTech is delisting from the NYSE for US$3.3 billion. The trend comes amid increasing expectations that domestic IPO approval rules will be further relaxed in October. Also, Chinese private equity houses have been significantly active in the past two years, meaning more experience and bigger portfolios. Privatisation means more work for everyone, but more money. All this hinges on, however, the Shanghai and Shenzhen stock exchanges maintaining their highs.

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100% foreign ownership in e-commerce extended to rest of China

The Ministry of Industry and Information Technology has announced a pilot program that allows 100% foreign ownership of e-commerce businesses, lifting the restriction nationwide after a trial in the Shanghai Free Trade Zone. The move has been interpreted as a means of providing foreign companies which use the VIE structure a way out before the proposed crackdown on VIEs under the new PRC Foreign Investment Law. The definition of e-commerce in the new rules may need clarification – it appears to refer to companies operating in online data and transaction processing, but the application scope will need to be determined. Multinationals operating in China using VIEs include Amazon, CBS and Pearson Education. Amazon, as an online company, will benefit from this rule but it is unclear how MNCs using the structure in other sectors will be affected.

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Hillhouse Capital invests in Uber

Chinese fund manager Hillhouse Capital Group is leading an investment in Uber Technologies by purchasing bonds that convert into shares at a discount to the taxi app company's future IPO price. The fundraising is dedicated to boosting Uber's China operations. The approximately US$1 billion deal has sparked controversy as Hillhouse is also an investor in Didi Kuaidi, which is China's largest taxi-hailing app as a result of a merger between Didi and Kuaidi, backed by Alibaba and Tencent. It has a near 80% market share, while Uber holds about 11% of China's premium ride-hailing market. Despite two of its China offices (Chengdu and Guangzhou) being raided and shut down last month, Uber is still pushing forward as the market is too big to give up on. Didi Kuaidi is also looking to raise US$1.5 billion that could value the company at US$12-15 billion. Both are playing an active role in the crossroads between the internet and China's heavily regulated economy. The race is on.

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