China’s new IPO rules could hinder companies from bike-rental firm Hello to Spark Education preparing for US listings
- More than 20 Chinese companies have filed paperwork to pursue US listings this year, with dozens more expected
- Beijing said it would undertake a sweeping overhaul of its regulations on how companies raise capital both domestically and overseas
The announcement comes after nearly three dozen Chinese companies raised an eye-popping US$12.5 billion through IPOs in the US in the first half of this year. More than 20 companies have filed paperwork to pursue listings on American bourses, with dozens more waiting in the wings, according to regulatory documents reviewed by the Post.
The new rules could slow what has been a steady stream of listings by Chinese firms in the US, but are not likely to end them completely as American financial markets remain some of the deepest and most liquid in the world and are still attractive to Chinese entrepreneurs, particularly the founders of technology firms, according to accountants, lawyers and other deal makers.
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“It will be inevitable that some Chinese companies may hold up their US listing plan as they will check on how they can comply with the new mainland regulation,” said Tom Chan Pak-lam, chairman of the Hong Kong Institute of Securities Dealers, the industry body for local brokers in the city.
“This is not an issue about whether China is encouraging US listings or not … it is about data security,” said Edward Tse, founder and chief executive of Gao Feng Advisory Company. “Big data [owned by tech companies] does have national security implications. It’s not new, and the issue is always there. The point is, whether companies like Didi have recognised the issue. Are they factoring in the national security issue when they applied to go public [in the US]?”
In the first half of the year, 34 Chinese companies combined to raise US$12.5 billion in the US, the most in more than a decade and more than the US$10 billion raised by companies on the Shenzhen Stock Exchange in the same period, according to financial data provider Refinitiv. That compared with US$20.5 billion raised in Shanghai and US$28.59 billion in Hong Kong in the first six months of the year.
However, a number of companies have delayed their listings in recent months as valuations have waned somewhat for tech firms, and China has taken a series of regulatory measures to reshape the industry.
Hello, podcast provider Ximalaya and cloud computing company Qiniu all reportedly delayed their IPOs in May as valuations declined, but are among the companies still in the pipeline for potential listings in the US.
Other companies that reportedly delayed their listings in recent months, but are still pending, include Chinese dating app Soulgate and Spark Education, which is known as Huohua Siwei in Chinese.
Hello, also called Hello TransTech, declined to comment, while the other companies did not immediately have a comment or respond to requests for comment on the status of their IPOs on Wednesday.
Atour Lifestyle Holdings, a Chinese lifestyle brand and hotel operator under the Yaduo brand name, said on Wednesday that its US listing remains in progress. The company filed to go public in June.
Among firms that have not yet filed, but are highly anticipated to go public is short-video platform Douyin, which is part of China’s most valuable unicorn ByteDance, according to a person familiar with the matter. The company may well list in New York or Hong Kong.
“It is still very unclear what impact any new regulations that may be issued based on this high level guidance will have. Having said that, this is another signal among many signals from both the US and China that will likely lead to a considerable amount of uncertainty in the next few years, particularly for Chinese companies listed on US exchanges,” said Marcia Ellis, partner and global chair of law firm Morrison & Foerster’s private equity group.
One question is whether the rule changes will ultimately force Chinese firms incorporated overseas through so-called variable interest entity (VIE) structures to restructure or seek approval to list from Chinese authorities.
Chinese regulators are considering requiring companies who use a VIE to seek approval before listing outside the country, Bloomberg News reported Wednesday, citing people familiar with the discussions.
“Global investors are already hyper nervous at this point and fearful the worst is yet to come. Every single Chinese tech company planning to list in the US will have to think twice, and most likely be forced to abandon the plans altogether,” said Fred Hu, founder of Primavera Capital. “[However,] China has a massive pipeline of IPO candidates. I believe the Chinese regulators do not intend to block companies from going public. A vibrant capital market and ability to raise capital remain essential for China’s economic growth and tech innovation.”
Additional reporting by Peggy Sito and Georgina Lee in Hong Kong and Minghe Hu in Beijing