HONG KONG, Fri, Dec 6, 2014 – Carlyle Group-backed display advertising firm Focus Media Holding Ltd is mulling a stake sale of up to $900 million, to pay down debt ahead of a possible listing in China, according to two sources with direct knowledge of the matter.

The sale of a 10 percent stake would value Shanghai-based Focus Media at between $8 billion and $9 billion, more than double the price a Carlyle-led consortium paid for the firm in 2013.

Discussions are at an exploratory stage and may not proceed. The company was earlier reported as planning a $1 billion Hong Kong IPO in early 2015, and the sources said that Hong Kong remains the preferred listing destination.

Focus Media is also considering a dividend recap of over $1 billion, as the company’s owners look to take profits from an asset which has seen EBITDA grow by nearly 30 percent a year for the past two years, the sources said.

The Carlyle led consortium, which included CITIC Capital Partners, China Everbright, FountainVest Partners and Fosun International Ltd, bought the company for $3.7 billion and delisted it from the Nasdaq in 2013.

A $500 million recap was completed in 2013, the first reported deal of its kind for a Chinese company owned by foreign private equity firms. That debt has largely been paid down, and the company’s EBITDA of around $580 million a year is now more than its net debt, the sources said.


The discussions around the potential stake sale come with plans for a Hong Kong listing still on hold, pending a U.S. Securities and Exchange Commission (SEC) investigation into possible securities fraud, which Focus Media announced in a statement early in 2013.

That investigation followed 2011 allegations of fraud against the company made by shortseller Muddy Waters.

However, the sources said a settlement with the SEC is expected soon, and could be for around $20 million. Since a final date for any settlement is not known, owners of Focus Media have been discussing ways to take profits out of their asset, including the sale of a stake to pay down debt ahead of a China listing, and a possible second recap.

Potential buyers for the stake would likely include local Chinese firms, one of the sources said, such as Chinese insurers and fund managers who heavily backed the sale of a $17.5 billion stake in Sinopec’s retail arm earlier this year.

As the company has paid down much of its previous debt, a recap deal of as much as 2 or 3 times EBITDA, equivalent to around $1.16 billion to $1.74 billion, is also possible, and could be used to pay dividends out to the company’s owners.

Carlyle and the SEC declined to comment. Focus Media did not respond to requests for comment. Sources could not be named, as details of the discussions were not public.

The 2013 deal to buy Focus Media is the biggest ever leveraged buyout of a Chinese company, and was backed by a $1.525 billion debt package.

Focus Media is among a slew of “China orphans” expected to relist in Hong Kong and China over the next few years.

“China orphans” is a phrase used by bankers and private equity execs to describe firms previously listed in the U.S. or Singapore, but which received little attention and were delisted in the hopes of achieving a better valuation closer to their home markets, where investors are more familiar with their business models.

Those hopes have been boosted this year by the performance of private equity backed China pharmaceuticals company Luye Pharma Group Ltd, which has seen its stock price rise over 60 percent since its Hong Kong debut in July. Luye Pharma was previously listed in Singapore.