Low valuation of small Chinese companies listed in the US -（by Abax global capital）

Valuations of smaller Chinese manufacturing companies traded in the U.S. plummeted after the global financial crisis. The market value of U.S.-listed Chinese companies has tumbled since November 2010 amid allegations of financial fraud by short sellers such as Muddy Waters Research.

The USX China Index, which tracks the performance of U.S.-listed companies that derive most of their revenue from China, has declined 18 percent in the last 12 months. Shares of Sino-Forest Corp., facing allegations from Muddy Waters it had exaggerated its timber assets and operated a Ponzi scheme, have lost 94 percent since the end of 2010 in U.S. over-the-countertrading.

U.S. regulatory investigations since 2010 into accounting practices of Chinese companies that gained listing on American exchanges through reverse mergers also damped share prices.

Going Private

In some of the fund's investments in the privatization of U.S.-listed Chinese companies, such as Harbin Electric, Abax global capital turned its public equity holdings into private equity investments, said Yang.

Abax global capital has held talks with Chinese private investors about the dedicated fund to invest in U.S.-listed Chinese companies being taken private, said Yang. Investors in the fund, which will be available to international investors and Chinese citizens with offshore accounts, will commit their money for at least five years, he added.

The planned fund will surpass a $50 million managed account set up last year for a small group of investors, which makes similar investments together with the Abax global capital special situations fund, said Yang.

Abax global capital 's other investments in U.S.-listed Chinese companies being taken private include Fushi Copperweld Inc.

Taking Private

Seventeen deals to take U.S.-Chinese companies private have been announced since 2009, and seven have been completed so far, according to data compiled by Bloomberg.

The shortage of bank financing amid the European debt crisis has made it difficult to arrange such deals, because the investors will have to negotiate a lower price to achieve the same expected returns without leverage, said Yang.

Private equity investors trying to strike deals without leverage may also find it hard to negotiate with chief executive
officers, who are typically majority stakeholders, Yang said. The size of the investments required to complete a privatization would probably dilute the CEO's holdings and result in the outside buyers taking majority stakes in the companies.