A privatization offer for Nasdaq-listed compounder China XD Plastics Co. Ltd. is being sharply questioned by some shareholders, saying it undervalues the company.
The company, which is one of China's larger suppliers of automotive engineered polymer compounds, announced an offer in early May from Chairman Jie Han to take the company private, the second time in three years he's floated the idea.
But on a June 1 earnings call, some analysts said smaller shareholders have major concerns about the deal, which offers to take the company private at $1.10 a share. A previous buyout coalition led by Han offered $5.21 a share in 2017.
"There's no point in agreeing to a deal at this level because it's such a low price," said Matthew Larsen, a financial analyst with National Securities Corp. in New York. "One would rather take their chance in courts or just not voting for it to go through."
"There's tremendous disappointment on my part as well as investors that I represent that they feel that this is not a very honest or ethical maneuver by Mr. Han," Larsen said. "It's something that in the United States here, nobody would even try because they would realize that there would be a class-action lawsuit."
Han did not make detailed comments on the privatization offer but, speaking through a translator, said that he "wants to thank you for your understanding of his position as regards to the going private offer. He wants to tell you that it's not an easy decision and there's also pressure associated with it."
The earlier privatization offer, made by Han and others in 2017, ran into similar opposition from smaller shareholders before that bid was ultimately dropped.
Han and an affiliate of private equity firm Morgan Stanley in Asia were the main partners in that 2017 offer. Morgan Stanley Private Equity Asia had invested $100 million in China XD in 2011.
China XD released its 2019 financial results on June 1, reporting that its sales rose 13.6 percent in 2019 to $1.44 billion, before the coronavirus pandemic hit China's economy.
It said its net profit for the year fell 95 percent, to $3.1 million, from $68.3 million in 2018, on the backs of a $65 million fourth-quarter loss stemming from non-payment of an order from a new customer in the United Arab Emirates.
The company recently opened a plastics compounding facility in Dubai.
But Larsen questioned that reported fourth quarter loss, saying that the firm has also said that it expects to collect that money later this year. He questioned the vetting that went into the UAE deal because it represented more than half of China XD's foreign sales.
"It doesn't make sense that you would make a sale to a new customer like that and not get paid," Larsen said. "It's almost as if it's purposefully been delayed so that the numbers would look bad, I have to tell you that."
Han and XD officials said on the call that they expected to collect that money from the UAE customer later this year.
They said the company has appointed a committee of independent directors to evaluate Han's privatization offer and has hired outside financial and legal advisers for that special committee.
Han and his partners in the privatization offer own 50.1 percent of China XD's share capital and hold approximately 70 percent of the voting power in the company, XD said in a statement.