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FactSet Flashwire Weekly - July 18, 2005
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Going Public Is No PIPE Dream for Chinese Companies
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Vol.2, No. 16, Pg. 5
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In a bid to enhance their profiles and raise foreign capital, Chinese enterprises are increasingly using reverse mergers to get themselves listed in the US. The transaction, known as a reverse takeover (RTO) in Asia, involves a private company, in this case, a Chinese company, partnering with a public shell company listed on the OTC Bulletin Board. The public shell acquires the private company, the name of the company is typically changed, and a new stock begins trading. The reverse merger is much cheaper and faster to execute than an initial public offering and avoids regulatory scrutiny by the Central Government that a Chinese company would have to undergo for an IPO. Michael Donahue, an attorney with Richardson Patel, said the transaction is filling a need for smaller Chinese entrepreneurial companies looking to raise $5 million to $50 million. Right now there is a tremendous boom in this, he said. Aside from becoming listed in the US, which facilitates capital raising both in the US and in Asia, going public can get Chinese enterprises access to the PIPES market. In a private investment in public equity (PIPES) deal, the Chinese company, after establishing liquidity on the Bulletin Board, would attract a PIPE investor, typically a hedge fund. The public company issues stock to the investor, who agrees to register that stock with the Securities and Exchange Commission so it can be resold to the public. The main advantages of a PIPE deal over a private equity investment are that the investor gets a liquid stock that can be publicly sold and the Chinese company gets a cash infusion. So far, Chinese companies that have participated in reverse mergers have not had a great track record in pumping up liquidity to the point that they attract a PIPES investor, Donahue said. Still, taking Chinese companies public by these means has created a burgeoning niche for facilitators such as Halter Financial Group, a Dallas, Texas-based consulting company focusing on reverse mergers. In response to greater interest in China, the firm created the Halter USX China Index in 2003. Calculated and distributed by the American Stock Exchange, the index is made up of companies whose common stock is publicly traded in the US and whose business is primarily done in China. Since launch, it has grown from 23 to 49 companies. There are hurdles. The State Administration of Foreign Exchange (SAFE) rules issued earlier this year that prohibit registered Chinese companies from being acquired by offshore companies are making it harder to get listed outside China, said Tim Halter, president of Halter Financial. But there are ways to do reverse mergers in compliance with the new rules. And thousands of Chinese companies restructured offshore prior to the rules taking affect, so the pipeline of potential reverse mergers from China is fat, he said. Finally, industry rumor has it that the Chinese Government plans to issue more rules and regulations about stock exchange transactions that should benefit the reverse merger industry.
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Strong Track Record
Fri, 10 Sep 2010 10:43:55 GMT
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*Note: Representative Transactions (partial list)
Deal Direct
We maintain a large inventory of public shells that we control as principals. As we do not act as intermediaries our transactions are conducted on a principal to principal basis.
Most Knowledgeable
For the past fourteen years, we have conducted and participated in seminars on the reverse merger process. We have instructed hundreds of attorneys, CPAs and professionals about the process.
Capital Raising
We have the ability to invest our own capital in our clients’ transactions. We invest side by side with our institutional partners, and have a relationship with and are a principal in an independent investment fund that invests in reverse merger transactions.
Turnkey Solution
We have the people and experience to handle every aspect of the reverse merger process so you can stay focused on your business.
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