Harbin Electric Going Private: Chinese LBO Pioneer

(Harbin Electric, China stock LBO story updated for analyst comment)

NEW YORK (TheStreet) -- There seems to be no end to the appetite for Chinese stock initial public offerings, but how about Chinese stocks bidding adieu to the public markets?

One of the first major Chinese stock leveraged buyouts was announced on Monday. Harbin Electric(HRBN) doesn't want to be a publicly traded U.S. stock any longer. The Chinese electronics firm said that its chairman and CEO, Tianfu Yang, had struck a deal with Baring Private Equity Asia Group to acquire all of the outstanding shares of Harbin for $24 per share in cash. Yang already owns 31.3% of the Harbin Electric shares. Goldman Sachs is advisor to the Harbin CEO and Baring on the deal.

Is Harbin Electric to be the first of Chinese stocks fed up with valuations from the public markets to say goodbye to listing in the U.S.?

The deal took the markets, and analysts who cover Harbin, by surprise. Harbin Electric shares spiked early in the morning to a level above the $24 per share privatization premium, as speculation arose that a competitive bidding war would ensue.

Echo He, analyst at Maxim Group, said that she found the prospect for a competitive bidding war unlikely, as there is not a very active leveraged buyout market in China, and for new private equity players to get into the market is far from easy. Additionally, the existing private equity players in China have no shortage of private investments to throw money at, so they have no need to bid up Harbin.

Additionally, the $24 price per share represented by the privatization offer is a premium that it would take 12 months for Harbin Electric shares to reach, in the opinion of the Maxim analyst, who has a 12-month $24 price target on Harbin Electric shares.

At a larger level, Harbin Electric's decision to go private may reflect the long-time issue for Chinese stocks of not getting the valuation their management believe they deserve from the U.S. markets.

Part of the problem has always been the accounting scandals and earnings restatements, if not rampant fraud, that has dogged Chinese stocks and resulted in a major risk discounting in shares. While many Chinese stocks deserve this toxic reputation, the Maxim analysts said that Harbin doesn't fit this stereotype and Harbin management had expressed frustration recently with what it viewed as poor valuation for its shares.