Westwood Lawyer Stocks China

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After the dot-com bust, which left many attorneys without jobs, Kevin Leung took a year off to travel the world and reflect on his career choices.

During that time, the securities attorney witnessed firsthand how communications advances were supercharging global business. He had an epiphany.

“I just saw the world getting smaller,” he said, “and I thought international (business) might be the place to be.”

Leung, who emigrated from Hong Kong to the United States when he was 7 and speaks Mandarin and Cantonese, played to his strength. He joined a small law firm in Westwood to start its Asian Practice Group, which specializes in taking small Chinese companies public in the United States. Not only is his group one of the very few that does that kind of work, he has helped fuel a growing trend.

In just five years, Leung has grown the practice, turning it into one of the most lucrative divisions of Richardson & Patel LLP. Over the last year and a half, in particular, the group has grown from a pair of attorneys to 10 – and Leung is still hiring.

Rather than handle large initial public offerings, Leung focuses on small companies, taking them public through nontraditional moves such as reverse mergers. He also handles secondary offerings and other corporate financings.

Most recently, Leung helped China Jo-Jo Drugstores Inc. go public in September. To date, the group has represented more than 30 Chinese companies with a combined market capitalization of $1 billion.

“The practice today is very robust,” Leung said. “There is a tremendous amount of interest among U.S. investors in Chinese companies.”

Indeed, as investors increasingly diversify their portfolios and invest in emerging markets, China is one of the biggest beneficiaries of that trend. Despite the global recession, China has one of the fastest growing economies. It expanded nearly 9 percent in the third quarter.

“With the big stimulus effort they’ve got going on, that’s created a lot of business opportunities,” said Nick Einhorn, an analyst for Renaissance Capital, a Greenwich, Conn.-based IPO tracking firm.

As a result, many small Chinese businesses are seeking growth capital. With relatively young and immature stock markets in China, scores of companies are looking to the United States.

According to data from Renaissance Capital, more than 70 percent of the foreign IPOs in the United States this year were from China or Hong Kong.

“The U.S. markets are viewed as a little more investor-friendly and they’re a little more established,” said Einhorn, adding, “You get a reputation boost by listing in the U.S.”

For Leung, though, business wasn’t always strong.

Slow start

After founding the practice in 2004, he struggled with a handful of small transactions, “cutting very cheap deals to get at the business.” Slowly, he built a network of business and government contacts in China and Hong Kong that would help steer promising young companies to him.

Leung decided to focus on small companies because large Chinese corporations were already being courted by major law firms and investment banks. Smaller companies, he noticed, received little attention.

“We saw a little bit of a void,” he said.

Unlike many local firms that receive cases through referrals from investment banks, Leung relies on his contacts to find companies. He introduces them to auditors and investment bankers who can assist in a public offering.

Leung’s group of attorneys – who speak Mandarin, Cantonese, Tagalog and Korean – grew steadily until late last year, when the global financial crisis hit and the public markets locked up.

“Last year at this time, we were sitting around (saying), ‘What do we do now?’” he said. “Absolutely no deals were getting done. A couple of our deals got stalled during that period.”

As the markets thawed, however, business picked up quickly.

Early this summer, the group helped Skystar Bio-Pharmaceutical Co. join the Nasdaq exchange and complete an offering that netted roughly $20 million.

In September, the group engineered a reverse merger for China Jo-Jo Drugstores, a Chinese chain now listed on the Over-the-Counter Bulletin Board. Leung said he expects the company to be listed on Nasdaq by June.

Leung said he prefers having small companies go public over the counter because it is quicker and eases the transition for executives who are unfamiliar with U.S. public markets.

“It’s like being public with training wheels,” he said.

Bennet Tchaikovsky, the L.A.-based chief financial officer for China Jo-Jo, said Leung’s team proved adept at preparing the company for public reporting.

“They do a very, very good job basically guiding people through it,” he said. “For Chinese companies operating in the U.S. it’s certainly a very difficult road to navigate. There’s a lot of different pieces to the puzzle.”

Cultural differences

Despite the large number of Chinese companies eyeing U.S. markets, there are not many law firms with practices dedicated to assisting small Chinese companies in U.S. public offerings.

One of the most prominent is Loeb & Loeb LLP, a century-old L.A. law firm that has represented more than 50 public offerings for Chinese companies. It has applied to open a representative office in Beijing to service its growing China practice.

Mitchell Nussbaum, who chairs the firm’s securities practice, could not be reached for comment.

A number of individual attorneys also have tried their hand with Chinese companies, but Leung said it is difficult to keep business coming in without a dedicated team and Chinese network. Leung, for example, is licensed to practice law in Hong Kong and maintains an office with a firm there that is affiliated with Richardson & Patel.

He also hasn’t slowed his pace.

“We’ve seen guys come and go in the space, and we’ve outlasted them,” said Leung, who still travels to China regularly to maintain his extensive network of contacts. “I go there three or four times a year, two to three weeks at a time.”

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