Traders work during the IPO for Chinese ride-hailing company Didi Global Inc on the New York Stock Exchange (NYSE) in New York City, U.S., June 30, 2021.
Brendan McDermid | Reuters
BEIJING – Half a year since China’s IPO craze in the US has dried up, many details remain unknown for companies looking to pursue such an international listing.
Since fallout via a Chinese ride-hailing app DidiDuring their IPO in late June, authorities stepped up scrutiny of Chinese companies raising billions of dollars in the US mass market. It’s a 10-year high among 34 China-based companies listed in the US this year, but only three of the IPOs have taken place since July, according to Renaissance Capital.
Regulators in both countries released explanations this month on what it takes from Chinese companies to list shares in the US.
During the Christmas holiday weekend on Wall Street, China Securities Regulatory Commission proposed rules for domestic companies if they wanted to list abroad. The public comment period ends on January 23.
The CSRC’s proposed rules say an overseas listing could be stopped if authorities consider it a threat to national security. The draft said that domestic companies need to comply with relevant regulations in the fields of foreign investment, network security and data privacy.
Winston Ma, adjunct professor of law at New York University and co-author of the book “The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investing in the Digital Economy. “
Not banning the popular VIE structure
For years, Beijing has said one of its goals has been to increase access and improve its stock market, which is only about 30 years old. Authorities have tried to make it easier for companies to raise money from the domestic stock market by gradually transitioning to a registration system, from an approval system.
The new regulations on overseas listings set out specific requirements for filing documents and said the securities commission would respond to filing requests within 20 business days of receipt. all documents, according to a draft.
Nor did the Commission prohibit the widely used variable-rate institutional structure, as some have feared. This structure creates a listing through a shell company, usually based in the Cayman Islands, which prevents investors in US listed shares from having majority voting rights.
“If they comply with domestic laws and regulations, companies with a VIE structure are eligible to list abroad after submitting an application to the CSRC,” the commission said in a statement. Statement in English on its website. It does not specify what those laws and regulations are.
However, the amount of foreign investment allowed in China’s VIEs is likely to fall to match mainland China’s A-investment, said Bruce Pang, head of macroeconomics and strategic research. model at China Renaissance, said.
He pointed to a online questions and answers Article on new regulations on foreign investment from China’s Ministry of Commerce and National Development and Reform Commission. The article notes existing restrictions that limit foreign ownership to 30% of a company’s shares, with each foreign investor capped at 10% of the shares.
US ownership of Chinese stocks listed in New York is relatively low, according to data from Morgan Stanley. Among those eligible for a secondary listing in Hong Kong, the average share of US ownership of the top 50 names is 27%, according to CNBC calculations of the data.
Foreign financial institutions may also face greater requirements to participate in Chinese IPOs.
“The [CSRC’s] The proposed rule would also require international banks that underwrite an overseas-listed Chinese company to register with the CSRC, which could create new compliance challenges for underwriters. foreign consuls, as they may need to follow Chinese rules after registering with [the] CSRC,” said Ma, the former managing director and North American head of China Investment Corporation, a sovereign wealth fund.
Thorough testing extends to SPAC
Meanwhile, the US is stepping up efforts to warn investors about the uncertainties of investing in Chinese companies listed in New York.
Earlier this month, the US Securities and Exchange Commission finalized the rules it needed to implement a law that could force Chinese companies to delist on US stock exchanges. It is not clear when such doubts will begin – Morgan Stanley analysts Don’t expect them to happen at least until 2024.
The SEC’s Corporate Finance Division last week also Detailed release on 15 areas where it “encourages” China-based listings – current and future – to increase disclosure. Part read:
Indicate whether you, your subsidiaries or VIE are covered by licensing requirements from the China Securities Regulatory Commission (CSRC), the Cyberspace Administration of China (CAC) or any other any other government agency required to approve VIE’s operations and confirm that you have received all necessary permissions or approvals and whether any rights or approvals have been denied .
The SEC statement notes that special purpose acquisition company having significant ties to China should also disclose the risks involved. SPACs have exploded in popularity over the past two years. They bypass the traditional IPO process by using shell companies created with the sole purpose of acquiring existing private companies.
The CSRC’s draft rules say that companies entering other markets through SPACs are subject to the same filing requirements as overseas IPOs.
