Qihoo buyer group said to hit impasse with Chinese FX regulator

[HONG KONG] The Qihoo 360 Technology Co buyout consortium, seeking to take the Chinese company private in a US$9.3 billion deal, has hit an impasse with the nation's foreign-exchange supervisor as the regulator scrutinizes the deal, people with knowledge of the matter said.

China's State Administration of Foreign Exchange, whose approval is needed to convert large sums of yuan into US dollars, told the investor group it can't move the acquisition funds offshore in a single batch, according to the people.

The consortium, led by Qihoo Chairman Zhou Hongyi, is still negotiating with officials from Safe, the people said, asking not to be identified as the information is private.

The government has been seeking to control fund outflows amid a US$42.6 billion wave of privatization offers for US-listed Chinese companies since the start of last year.

China wants to avoid encouraging too many buyouts of overseas-traded companies that could increase depreciation pressure on the yuan, people with knowledge of the matter said earlier this week.

Qihoo, which announced a definitive agreement with the investor group in December last year, would be the biggest buyout of a US-listed Chinese company. At least 47 such take-private offers have been announced since the beginning of 2015, as companies were lured by the prospect of relisting at a higher valuation in Shanghai or Shenzhen, data compiled by Bloomberg show.

The foreign-exchange regulator has told the Qihoo investor group, which also includes Ping An Insurance (Group) Co and Sequoia Capital China, that it should move the acquisition funds overseas in several batches, according to the people. Safe is also requesting additional documentation on the transfers to ensure they comply with regulations designed to prevent capital flight, the people said.

Liu Li, a spokesman for Qihoo, said the privatization process is still on track and it's "completely untrue" that there is disagreement between Qihoo and Safe on how to move money abroad.

Qihoo's Mr Zhou said in a mobile-phone text message that the privatization process is on track, declining to comment further. Safe didn't immediately reply to a faxed request for comment.

Qihoo, which has said it aims to complete the transaction during the first half of 2016, won shareholder approval March 30 and got the green light from China's state planning agency, the National Development and Reform Commission, the next month. The parties have the right to terminate the merger agreement if it hasn't been completed by Sept 18, according to a regulatory filing in December last year.

Shares of Qihoo have been volatile this week as investors reacted to potential measures China's stock regulator is considering to curb the flow of domestic backdoor listings. The company jumped 8.9 per cent in New York trading Tuesday, after falling 11.3 per cent the day before.

BLOOMBERG