Chinese Companies Say Goodbye to U.S. Exchanges

“Carol Yu, co-president and chief financial officer of Sohu.com, last week denied newspaper reports that the giant Chinese internet portal was in talks to go private.  “No such discussions are in progress or currently contemplated,” she said in a statement Wednesday.

Hours before, Hong Kong’s South China Morning Post, citing four “financial industry sources,” reported that the Beijing-based company had talked to Credit Suisse and others about its plans to delist from Nasdaq, where it debuted in July 2000.  “Both Charles and his bankers believe Sohu is significantly undervalued at present in terms of share price performance,” said a source to the paper, referring to Sohu founder and Chairman Charles Zhang.

There’s no doubt that Sohu has been underperforming the market.  In the past 12 months, the stock has fallen more than 9% while the S&P 500 jumped more than 12%.  Zhang may blame America, but the decline is attributable to investor skepticism about his company’s profitability in the long run, despite a good fourth quarter when it outperformed expectations.

Sohu does not match up well against its host of competitors, especially its two main portal rivals, Sina.com and NetEase.  Moreover, Sohu is also outgunned by companies that provide specific services, most notably Chinese search leader Baidu.  All three of these Sohu competitors are Nasdaq-listed.

Sohu is not the only laggard trading in the U.S.  As a result of low stock prices, Chinese companies are leaving American exchanges.  Barron’s reports that last year 25 U.S.-listed China businesses announced they would delist.  In 2011, 16 of them revealed delisting plans.  In 2010, the number was six.  Besides Sohu, two other major Chinese companies have “sought advice” on fleeing U.S. exchanges, theSouth China Morning Post reports.

Charles Zhang, according to the Hong Kong paper, has been inspired by the privatization plan of Focus Media, a Nasdaq-listed firm.  If the Shanghai-based advertiser actually goes private, it will be the largest Chinese company to delist from a U.S. exchange.

Analysts think Focus Media will relist in Hong Kong once it bulks up its revenues and strengthens its balance sheet.  That appears to be Charles Zhang’s plan for Sohu as well.  Even though Sohu issued denials—one of them in an 8K filed with the Securities and Exchange Commission—the reporting of the South China Morning Postnonetheless feels accurate, especially given the delisting trend among Chinese companies….”

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