Chinese digital currency exchange Huobi is now the largest shareholder in an investment company called Pantronics Holdings Ltd after spending $77 million to buy 73.73 percent stake in the Hong Kong-based firm.
Pantronics Holdings makes electrical and electronic products. Huobi managed to become the company?s majority shareholder courtesy of a backdoor listing agreement also called a reverse initial public offer (IPO) or a reverse takeover. Backdoor listings allow private firms to purchase stake in publicly traded firms without having to go through the process of a public offering. This means they do not have to go through due diligence and strict regulatory requirements.
The acquisition might be a strategic move that Huobi could use to go public through a reverse IPO. Leon Li, the CEO, chairman and founder of Huobi Group will receive more than 221 million ordinary shares from Pantronics Holdings. This means that Li will own 73.73 percent of the investment company, thus securing a spot for cryptocurrency exchange as the largest single shareholder.
The deal could be Huobi?s chance to join the secondary financial market
If the deal is given the green light, it will allow Huobi to take over Pantronics, therefore becoming a part of the secondary financial market. As far as regulatory issues are concerned, the Hong Kong Stock Exchange (HKEx) has reportedly been working on strict measures for backdoor listings in an effort to enhance the quality of listed firms and improve the market. The measures are not expected to block backdoor listings but instead, make sure that companies do not bend the rules causing investor concern.
?We essentially allow a backdoor listing. But what [we want] to ensure is that when this happens, the quality of the assets and the ultimate combined company to be listed on our exchange have been through an appropriate due diligence and vetting process,? stated David Graham, the chief regulatory officer at HKEx.
Despite the report about Huobi acquiring a majority stake in Pantronics Holdings, neither of the two companies has released any official confirmation about the deal. This could be because the crypto exchange is waiting for the Hong Kong Stock Exchange to approve the deal.