Shanda Games moves closer to backdoor listing

The online game developer looks en route to a backdoor listing in Shenzhen as a tussle between shareholders comes to an end.

Chinese online game developer Shanda Games has moved a step closer to returning to the mainland stock market after Zhejiang Huatong Holding Group agreed to buy a majority stake from the firm’s biggest shareholder.

Zhejiang Huatong will assume a 91% stake in Shanda after buying the 48% stake from Ningxia Zhongyin Cashmere, allowing it to take control of a well-known online game developer that was once listed on the Nasdaq in the US.

Zhejiang Huatong and Ningxia Zhongyin Cashmere were part of a consortium that took Shanda Games private in what could be one the most high profile take-private deals of a US-listed Chinese company.

Shanghai-headquartered Shanda Games was well-regarded among international investors, attracting interest from private equity firms such as Carlyle, Primavera and Fountainvest, which tabled a joint $1.9 billion offer to take the firm private in January 2014.

However, the group did not proceed with the offer and Shanda Games ended up in the hands of the Chinese consortium in November 2015.

But Zhejiang Huatong and Ningxia Zhongyin Cashmere have since embroiled in a power struggle over the control of the company.

In December 2015, Shanda Games’ minority shareholders requested Hong Kong’s high court to issue an injunction to block Ningxia Zhongyin Cashmere’s attempt to move Shanda Games into its Hong Kong subsidiaries, a move that was seen to squeeze out other shareholders including Zhejiang Huatong.

Uncertainties over the ongoing litigations were part of the reasons for Ningxia Zhongyin Cashmere to cash out of Shanda Games, the company said in a public filing. In addition, it has decided to sell because members of the buying consortium were unable to reach a consensus over the company’s operations as a private entity.


The transaction is an important step for Shanda Games to relist in China. Zhejiang Huatong said it could pursue a backdoor listing for Shanda Games by injecting the assets into its Shenzhen-listed subsidiary Zhejiang Century Huatong within 12 months after completing the share acquisition.

If successful, Shanda Games will become the second US-listed game developer to relist in China. Local rival Giant Interactive returned to the mainland stock market after completing a backdoor listing via Shenzhen-listed New Century Cruise in May last year, two years after the firm was delisted from the New York Stock Exchange in July 2014.

Zhejiang Huatong will hope to replicate Giant Interactive’s success and make a decent profit by relisting Shanda Games. Based on Friday’s closing price, Giant Internative is valued at close to $15 billion, five times the $3 billion valuation it had when taken private two and a half years ago.

But the relisting plan for Shanda Games may face several obstacles.

One major hurdle facing Shanda Games is the tighter requirement imposed by the China Securities Regulatory Commission on backdoor listings since last year. Sources said the measures, which are imposed to ensure market stability and prevent speculation, have already caused a number of relisting proposals to lapse.

Meanwhile, Shanda Games’ operations have been worsening since 2011, with net profit falling for five straight years from Rmb2 billion ($288 million) to Rmb724 million in 2015. The decline is partly due to increasing competition from internet companies such as Tencent, Netease and Qihoo 360, which have ventured into the lucrative online gaming business in recent years.

Shanda Games has also experienced a senior management reshuffle in recent years. Former chief executive Xiangdong Zhang was dismissed in 2014, while chief financial officer Li Yao and chief administrative officer Jin Zhang were laid off in June last year.

The financial terms of the deal were not disclosed.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media