Chinese Hedge Fund Fights Back as Its New York Market Dries Up

Activist investing isn’t a factor in China. It’s culturally frowned upon to be that confrontational. Liang Jian, a journalist-became-hedge-fund manager, is on a mission to trade that. Not that Liang, or Nick as he’s regarded in worldwide circles, might ever be harassed with the likes of the brash American activist buyers — the invoice Ackman’s and Carl Icahns and Dan Loebs. He’s a newbie with a warfare chest that’s a fraction of theirs, and zeroes revel in within the kind of epic battles for boardroom manage that have made those guys so famous.

But what Liang, 40, has begun doing — trying to block Chinese language corporations from buying lower back all of their U.S.-listed stocks at the cheap — constitutes possibly the boldest foray but into the area of activist investment within the Asian kingdom. His tactics have raised eyebrows in Beijing’s tight-knit funding and company network and earned him rankings of admirers and enemies in the process. He’s been referred to as a barbarian, spoiler, and lightweight who lacks the monetary assets to carry out the type of counter-offer he’s offering.
Liang is undaunted. “We need to combat for ourselves.”

He tells it by no means intended to become an activist investor whilst he founded iMeigu Capital management Ltd. 3 years ago. Instead, he turned into just seeking to manipulate touch money for himself and a handful of customers, focusing on Chinese net stocks traded in the big apple and Hong Kong. However, as company executives started out placing up a record $31 billion ultimate yr to buy lower back these U.S.-listed agencies, regularly intending to resell them in China at better prices, Liang changed into stunned. Now not handiest have been most of the gives at deep discounts to the IPO prices from just years in advance, but they didn’t even healthy their recent marketplace levels in a few instances. Anyone, he figured, needed to stick up for minority shareholders.
Deals struck him as particularly troubling.

Remaining July, the pinnacle executives at E-commerce China Dangdang Inc., once taken into consideration the united states’ solution to Inc., stated it wanted to repurchase all the shares in the open market for sixteen percent less than their average over the earlier 3 months. To that degree, it’s the lowest offer made via any Chinese company seeking to tug its shares of the U.S. marketplace when you consider that 2003.
Then in February, the founder of online beauty retailer Jumei worldwide keeping Ltd. said he was leading a collection searching to buy again all tremendous shares for $7 a bit, much less than a 3rd of the IPO rate lower back in 2014. The bid becomes so low that the organization’s $402 million in cash and equivalents would nearly be enough to cowl the buyout charges.

Chinese Hedge Fund Fights Back as Its New York Market Dries Up 1
The limitations of dealing with disgruntled minority shareholders are stark.
thru a complex ownership shape, the Chinese language management companies tend to manipulate the vote on these offers. And legal demanding situations are complex too, given that maximum of the groups are integrated inside the Cayman Islands, wherein local regulation is visible, providing little safety to minority shareholders.
That didn’t stop Liang from unleashing a torrent of lawsuit threats towards Jumei’s leadership in a widely publicized declaration in late February. He stated he’s running with other minority shareholders to compile their lawsuits. In the feud with Dangdang, he’s hatched a more developed plan, having put together a competing acquisition bid that is thirteen percent higher than controls provide at a valuation of $468 million.

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Press officials at Dangdang didn’t respond to e-mails and call calls looking for comment on the transaction. Jumei officers declined to remark.
The Jumei buyout organization called its provide “appealing” returned in February, months after founder Leo Ou Chen complained that the business enterprise became “significantly undervalued” via U.S. investors. And in an assertion accompanying their bid last year, the chairwoman and the CEO of Dangdang said the concept supplied “superior fee” to shareholders and stated the way it turned into higher than the day before this’s close, an argument that’s been echoed by way of pundits unsympathetic to Liang’s motive.

Many of his critics have brazenly doubted he can come up with the cash needed to fund his counter-provide for Dangdang, a perception he’s attempted to squelch via teaming up with a commercial conglomerate Jiangsu Huaxi organization Co. at the deal. “Meizu is only a noisemaker,” stated Jun Zhang, head of China studies at Rosenblatt Securities Inc. in San Francisco. “It gained’t has an awful lot substantial impact. They are likely doing this for the reputation.” Likewise, to many fellow minority shareholders, even though Liang is something of a hero.
“It’s an ambitious flow,” stated Peter Halesworth, the founding father of Heng Ren Investments, a Boston-based firm that invests in Chinese language companies listed foreign places. “We appreciate it, and different traders should recognize it. However, we need investors to raise their voices and thrust back against low-ball offers.”

Rice and Bananas

Liang turned into born and raised far from the economic centers in China’s north.
The son of rice and banana farmers from a small village inside the heart of us of a’s southern business base, he had become the first member of his own family to attend college when he made the 1,000-mile adventure to the Chengdu college of generation. He’d cross on to attempt his hand at a pair of exceptional jobs before breaking into journalism and finding out with a colleague to release their own monetary information internet site. They named it XueqiuChinese for snowball, a nod to the book that chronicled the lifestyles of their hero Warren Buffett — and scored economic backing from Sequoia Capital. That fulfillment in flip led Liang and certainly one of his Xueqiu colleagues to attempt investing itself in 2013 after they founded iMeigu in Beijing.

The timing became fortuitous. China’s internet industry has become booming, and among the agencies have been flocking to the U.S. market to head public. As a result, IMeigu’s loan fund has lower back 55 percent from its inception, in line with facts compiled using Bloomberg via the give up of March. (That’s triple the gains in the CSI remote places China internet index over that time.) nowadays, the hedge fund employs a half-dozen people and manages what Liang will the simplest way is a figure within the “tens of millions of greenbacks.”

as the Dangdang and Jumei disputes drag on, Liang doesn’t rule out taking on different corporate executives. More and more net firms are pulling their shares out of new York and trying to list back in Shanghai or Shenzhen, a trend pushed in element with the aid of the Chinese language government’s push to assist the generation industry.
For Liang, elevating opposition to these deals isn’t just about eking out a few more bucks right here and there. It’s miles, as he says, “a test of our survival.” For if agencies threaten to exit the U.S. each time their stock prices dive, Meizu’s market niche could ultimately disappear, taking with it, possibly, China’s nascent activist-investor motion.