Chinese ADRs – arbitrage this privatization

7/4/2015: as we observed the dramatic collapse of Chinese A share market and an indefinite delay of IPO from authority, we may not be able to see more Going Private deals, and for the ones announced, even though the author thinks most deals will still go through, but readers should be cautious of the risks and concerns over deals withdrawal. Thoughts on recent tumble

Amid all the doubts and bear talking (include Bill Gross’s “Short of a lifetime” talk), we see Chinese equity market bumps north. I agree the market is generally overvalued, but it is another topic if we want to short it.

So we see a lot of Chinese ADRs want to go home, there may be opportunities to play 1).sweeter deal; 2).potential new deal. The risks are: 1).the proposal doesn’t go through; 2). end-of-bull market in China will wipe out all the deals. To be fair, the risk are limited, and premium is moderate to high.

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