The raod of Huobi Global Reverse Merger With a Public Shell.

来源 作者:Guo Jing 2018/09/27

Capital market professionals give their views on why Huobi Global acquire this unpopular "shell".

On August 22, Pantronics Holdings, the acquired firm, a HongKong listed company (1611.HK) Pantronics halted the trading of its shares on the exchange from Aug. 22 "pending the release of an announcement relating to a possible offer to be made ... on Takeovers and Mergers, which is inside information in nature," the firm said at the time.

On August 28, several news sites report Huobi Global Limited (the ‘Offeror’ )CEO lee Lin is quietly seeking to become the largest shareholder of the firm, Huobi replied that the deal subject to the announcement of the Hong Kong Stock Exchange

Pantronics Holdings released a statement on Aug. 29 saying Huobi Group had completed the deal by purchasing about 199 million of its shares via two of the group's subsidiaries – Huobi Capital and Huobi Universal.



Pantronics Holdings, along with its subsidiaries, is principally engaged in the manufacturing of power-related electrical and electronic products. The Company’s products include solenoid coils, battery charger solution and power supply, light-emitting diode (LED) lighting and others such as printed circuit board assembly (PCBA) and inserted molding parts.

Pantronics Holdings went public on November 21, 2016, with the disclosed transaction; Lee is poised to become the owner of 73.73 percent of Pantronics and the largest substantial shareholder. Based on the filing, the transaction is priced at HK$2.72 (or $0.35) per share with a total amount nearing $77 million. Significantly, the Hithink RoyalFlush Information Network Co.,Ltd. statistics show that the price surged to HK$6.8 per share on the first day after the resumption, increasing 120% compared to the price in the suspension.


Hithink RoyalFlush Financial report shows that the overall Pantronics Holdings' finance showed a downside trend. On March 31, 2018, the net profit was HK$98.60 million, declining 54.4% year-on-year (compare to March 31, 2017) (approximately HK$1.177 million). Basic earnings per share have dropped from HK$0.6 to HK$0 since this September. In addition, its main profit margin has also dropped from 8.1% to 0.78%.

Why does Huobi Global acquire this unpopular company?

“If a company’s finance is fit, I thought no one wants to be the “Shell”. Regardless of Huobi Global and Lee Lin, professionals in the capital market seldom talk about Pantronics Holdings, because we regard it as a “shell” company.” A senior investor told

According to Accounting Tool, A public shell company is used by a private entity to go public. When a private company gains control of a public shell company, the shell is structured to be the parent company and the buyer’s company becomes its subsidiary. The owners of the private company exchange their shares in the private company for shares in the public company. They have now gained control over a majority of the stock of the shell, and are running a public company.   

One source at Eddid Securities and Futures Limited told, there are three reasons if a company want to find a “shell” go public. First, it is difficult for the company goes public in China because it does not meet the listing criteria; Second, the company has some historical problems and they do not want to expose their enterprise development information. An IPO requires a relatively long and stable earnings history. There is less dilution of ownership control. Third, IPO could help companies to go public and raise fund, while different countries have different regulations and crypto-exchanges may not compliance, therefore, they choose to Reverse Merger With a Public Shell.


The source claimed the criteria of shell company in the industry as follow,

Whether the cooperation is a global brand, the well-known company could not be a shell company. Obviously, Pantronics Holdings is not well-known.

Second, the market value of Shell Company is generally lower than the “shell”. The average shell price of HKEx is about 700million and Hong Kong growth enterprise market (GEM) is about 350million. Calculating based on its latest share price, the market value of Pantronics Holdings is far more 700 million, reaching 1.2billion. The stock price recently was manipulated and surged. Despite the manipulation, the share price is stable at HK$1, so its market value is 600million.

Third, the market value of shell stocks is relatively stable, which is convenient for buyers to value its transactions. The stock price of Pantronics Holdings as mentioned above is flat.

Forth, most construction and industrial companies are “shell” companies, and Pantronics Holdings belongs to the industrial field.

The last is to see whether the equity is concentrated. Capital injection into shell companies often has been in the work after the deal. If the original shareholders hold insufficient shares or the equity is not concentrated enough when voting if some shareholders disagree with the proposal, which reduces the attractiveness of shell. Generally, the original shareholders hold 60% or 70% of shares, and the shell is attractive. Parently, Xu Naicheng, the major shareholder of Pantronics Holdings owns more than 70% shares; this is suitable for the criteria.

The views of the above-mentioned professional are also reflected in many media reports. found that Tencent Securities wrote in the Hong Kong stock column in June 2017, it said that due to the increasing demand of mainland companies go public; the shell price of Hong Kong listed companies would surge rapidly. In 2011, the value of Hong Kong shell stock was between 180 million and 250 million. By 2017, the price has climbed to 650 million.

The article emphasized Pantronics Holdings, which listed on HKEx on November 21, 2016. By June 2017, Pantronics Holdings has been listed more than half a year, and it draws some attention. If the company intended to sell its shares, it should start the relevant procedures.

The stock price would increase, if a company, especially a well-known enterprise would like to draw mainland cooperation’s attention. The current market value of Pantronics Holdings is 360 million CNY, the shares may have a significant discount. The net asset value is high and the current price is low, the current shell price is 650 million CNY, and it can reach 760 million CNY and it is likely to sell the shell, the company would become the next surging stock.


In September 2017, Hong Kong stock analyst Yao Jingwei also mentioned in his article that Pantronics Holdings expects to sell the shell.

According to the requirements of Hong Kong Listing Rules, Pantronics Holdings can sell the shell unless it goes public for a year (at least on 21 November 2017), it can sell the shell. Even though it does not sell the shell, it also gives signals to investors that it would do.

Yao Jingwei also mentioned that by March 31, 2017, Pantronics Holdings interim reports showed that the group held more than 110 million CNY in cash at the end of March, and also had about 40 million CNY in inventory, property and plant value, etc. The total assets exceeded 210 million CNY. Its net asset value could reach as high as 117 million CNY. Besides business value, just calculating the asset value and shell price, the valuation of Pantronics Holdings should reach 750 million CNY.

“It is obvious that Huobi Global found a professional institution to help them select the shell. There is no uniform standard to judge whether the shell is good or not, but there are some clues to follow and depend on experience. For example, they would see whether the shell has involved in debt disputes or labor disputes. Then the judgment mainly rely on the listed time,Pantronics Holdings is listed in 2016, the timing is great. Listed enterprises who is old may leave some problems, such as debt disputes; Brand-new companies occur big scale share change and being regulated seriously,” the source added.

In fact, some companies who could not go public due to financial or other reasons would choose to Reverse Merger With a Public Shell. The domestic financial technology companies Dafy Holdings Limited (HK 1826) and Jimu Group Ltd.(HK 8187)has succeed go public in Hong Kong Through reversing merger. The purpose is to increase the possibility of successful filling in mainland China.” the source explained.

“Besides avoiding the approval of SFC, the other benefit of Reverse Merger With a Public Shell is less time-consuming, ” an authority told The authority explained that there are two categories of Reverse Merger, one is offering a public invitation, the same practice as Huobi Global, telling regulators, media and the public that it intends to take over a “shell”, the other one secretly reaches an agreement with shareholders. Regarding public invitation, only if the Offeror transfer equity under supervision, about two or three months the deal would be approved. After transferring equity, the offeror could restrict the original enterprise (New business would replace the old one).

In other words, as long as SCF approved, theoretically Huobi Global could transfer its blockchain and crypto-exchange services to Pantronics Holdings. In contrast, the offeror should cost a year to carry out the asset reorganization. Less time-consuming also appears on listing application. The statistics show that more than 140 companies waiting for applying to go public in Hong Kong Stock Exchange, these are companies who submit the application and approved. At least 500 companies are submitting the application. Queuing is also a difficulty. Therefore, it normally takes two or three years for a company to go public, while Reverse Merger With a Public Shell just cost three or nine months.


Pantronics Holdings announcement shows that Huobi Global hasmade a plan for Pantronics Holdings’ business, which would focus on crypto-asset and crypto-exchanges. The source emphasized that in mainland China, the offeror should provide similar services to the shell, but in Hong Kong, their main business could be different, and regulators would not check whether the business changes after equity transferring.


The source mentioned that Huobi Global does not acquire Pantronics Holdings at this moment and the deal is processing. The equity transfer has been approved by SCF. The source also shows not optimistic of the deal. He suggested that Hong Kong stock market has not approved trading platform as business go public, and He is afraid that Huobi Global is not able to change regulators’ mind.


Some news sites report that Hong Kong with a friendly attitude for cryptocurrency looks forward to being blockchain hub. Even though Bitfinex, Gatecoin, OKEX and Binance these well-known crypto-exchanges have registered in Hong Kong, those who familiar with Hong Kong regulations are not optimistic of this deal. Fu Lichun, director of Northeast Securities Research believes that although the Hong Kong stock market is more market-oriented, the Hong Kong Stock Exchange and the Securities and Futures Commission have not explicitly introduced regulations prohibiting the listing of digital asset trading platforms, Hong Kong regulators communicate frequently with Mainland regulators, Mainland attitudes may influence Hong Kong regulators.

“I suspect that Huobi Global explicitly announce to acquire Pantronics Holdings has other purposes. Pantronics Holdings’s stock and Huobi Global’s cryptocurrency HT have surged dramatically after the acquisition released, so it may be their marketing strategy.

Fu added that NASDAQ should be a better choice for Huobi Global, as the US is open to the global capital market. If Huobi Global goes public in the US, focusing on technical business, the possibility of listing is huge. As for Hong Kong, even though there is no policy to prohibit such companies going public, the risk of refusal is great because of the influence of mainland China’s intervention.

An institution holds the same perspectives as Fu, if the controversial enterprises like Huobi Global would like to go public, it should make a secret deal with the shell, rather than offering a public invitation, so it may have other purposes.

编辑:Zhao fei