Private equity investors are seeking Chinese companies to take private in the hope they can snap up bargains amid the coronavirus-related sell-off, but the banks that help find such deals are proving less keen to finance them.
FILE PHOTO: A logo of Baidu is seen at the company's headquarters in Beijing, following the novel coronavirus disease outbreak, China May 18, 2020. REUTERS/Tingshu Wang/File Photo
Bigger deals may also be in the offing. Internet giant Baidu , with a market cap of $39.4 billion, is considering delisting from Nasdaq and moving to an exchange closer to home to boost its valuation, Reuters reported in May. “It’s easier to conduct privately negotiated transactions with listed companies at more attractive valuations in this environment.”“The banks are being extra careful these days,” said Liu, adding that the caution was prompted by the risks posed to loan books amid the global economic downturn.
Lenders are also valuing companies below what bidders want to offer, with some going as much as 20% to 30% below the acquisition price because of a more cautious outlook, said Effie Vasilopoulos, a partner with law firm Sidley Austin. Buyers would have to put in more equity and tap alternative sources of debt, said the banker, which could raise the cost of a deal - and lower the expected returns.
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