We may get a clue this week as to what China really thinks about VIE structures. On March 28, 2011, Buddha Steel pulled a $38 million offering that was to land the RTO company on Nasdaq and also advised investors not to rely on its financial statements after Hebei officials found its VIE agreements invalid.
Internet data center operator 21Vianet is scheduled to debut on NASDAQ on Thursday, April 21, 2011. The company hopes to raise $138 million. The company uses the archetypal VIE structure for all of its operations - substantially the same structure that was used by Buddha Steel.
What we will learn on Thursday is whether the Buddha Steel case was a harbinger of the demise of VIE structures or just an aberration. If the deal is allowed to go forward ( and assuming that Chinese officials are paying attention) it would appear that the Buddha Steel case may have been a local decision, or perhaps instead an initiative that was targeted at the scandal prone reverse takeover companies.
The risk disclosures on the VIE structure in the 21Vianet registration statement are standard. There is no reference to the Buddha Steel situation.
21Vianet is a good test case. It has bulge bracket investment banks, white shoe law firms, and Ernst & Young. It is definitely not in the same class as the RTO companies. So, if a last minute problem pops up on this listing, Katy bar the door.
21Vianet Group Inc. raised $195 million in its IPO on Wednesday, selling more shares than planned at a price $2 higher than originally proposed. There was no last minute surprise from regulators about the VIE structure, despite the company being in the sensitive, and off limits to foreign investors, data center services business.
Next up is RenRen, China's Facebook. I can't think of a more sensitive company from the viewpoint of Chinese regulators, so if this listing goes without a hitch, I think we can conclude that the Buddha Steel precedent only applies to the little guys.