Despite market slide, AFH looks for China firms seeking US IPOs

BEIJING (XFN-ASIA) - Undeterred by the global financial downturn, consultant AFH Holding & Advisory LLC is on the lookout for Chinese firms eager to go public in the US.

Amir Heshmatpour, AFH's managing director, said he expects to see an upturn later next year in the US and that should spur interest among Chinese small and midcap firms in listing there.

"I think it will pick up at the end of 2009 -- maybe the second or third quarter -- somewhere in that timeframe," he told XFN-Asia in an interview.

California-based AFH, which helps firms prepare for initial public offers, has come back to tap its most important pool of international clients seeking strategic consulting and access to offshore capital markets.

"Right now, 90 pct of our business is in China in sectors including oil and gas services, cable, metals, industrial appliances. And we procure our capital (in the US), not from China."

He said AFH focuses on small to mid cap companies as it recruits candidates for potential US listings, primarily on the American Stock Exchange.

He said the economic downturn is making AFH's task more challenging, with many companies choosing to ride out the slowdown instead of going public in a bear market.

"For Chinese companies seeking US listings, the bar has risen significantly. Small caps with 2-10 mln usd in net income are very hard to finance. There has been a significant slowdown in the market," he said.

"Having said that, I think what will happen is the US will get over this tsunami, because at the end of the day, US capital markets are the most efficient, precise and most secure in the world."

Asked about key hurdles for Chinese companies he had this to say:
"Chinese firms are very entrepreneurial. For listing candidates, we need to help them change from an entrepreneurial background to a more corporate background, but with the language barrier, it is very tough," he said.

He added that companies that fail to communicate with investors pay a hefty price.
"if you are able to move your clients more to the corporate mindset ...they do very well. If you don't do that, unfortunately the Street is very unforgiving and it punishes them for their lack of communication, lack of knowledge of how things work on Wall Street."

Heshmatpour said he travels to China every 45 days to advise a number of companies on becoming publicly traded in the US.

"I go back and forth a lot. I think what these companies really need is advisors, and what advisors should really be asking them is: 'Let's see your track record and how well you have done for yourself'."

He said that when AFH meets with a firm wishing to go public, the Chinese company has already decided on the US as a listing venue, so AFH does not need to tout the benefits of AMEX, NYSE or the Nasdaq over rival bourses in Singapore, Hong Kong or Shanghai.

"We don't really try to sell them on whether to list in US, or elsewhere. When we are meeting with the client, the client has pretty much made up their mind on the US."
Chinese firms were drawn to the US capital markets due to some compelling incentives.

"They are attracted to valuations and access to capital. On an ADR listing, they can use their stock as a commodity for acquisition."

He said some of AFH's most promising clients from China looking to raise capital in the US include highway, finance and technology development company TNH Corp, and Kai Kai Cable.

"Kai Kai has a famous trademark, having been around for 17 years. They are triple A-rated from the Bank of China, and provide 1,100 different types of wiring products."
K&A Corp, an oil and gas services business, is also a client.

Several Chinese pharmaceutical and medical products firms have also successfully listed in the US but so far AFH has not made headway in that sector.

The executive said one client in the works with an eye on a US listing is a major provider of horizontal drilling services technology to Petrochina.

"We also have a deal that's being listed on the AMEX in the next 30 days," he said, though he declined to give details.

He also said they were working on a "large transaction" in the process of going through its audits.

"It's one of the largest privately-held companies in China -- a famous brand. I can't name it as they advised to keep it confidential. This company doesn't really need capital, they have significant cash on their balance sheet. But they want to come to the US capital market," he said.

"They want to have an international status, and they want to use their stock for acquisition and roll-ups," he said, adding that the firm has a 12-year history and employs 22,000.

He said that amid the ongoing market bearishness, AFH is looking to safer bets to weather the storm.

"Safer areas would be food and beverage and telecom services. We try to find listing candidates that have at least 10 mln usd-plus in net income and that have margins of 20-25 pct year-over-year.

"Those are the companies that we seek out. If an opportunity knocks in the telecom sector, we will probably jump on it as we have a lot of experience there."
(1 usd = 6.8 yuan)

Reprinted by AFH with permission from Xinhua Finance