An investor sits in front of a board displaying stock information at a brokerage office in Beijing, China.
Thomas Peter | Reuters
BEIJING – If U.S. regulation forces Chinese companies to delist from New York, new regulations from Beijing will further complicate their path to raising money on Chinese public markets. outside.
As of Tuesday, new regulations by the Cyberspace Administration of China require Chinese internet platform companies with the personal data of more than 1 million users to approved before listing overseas.
While the rules don’t apply to publicly listed companies, those pursuing dual or secondary listings abroad are subject to the CAC’s new approval process, according to a translation from CNBC’s a Chinese. The article was published Thursday on the regulator’s website.
That’s another consideration for international investors when looking at Chinese companies.
Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, said: “Timetables for companies’ overseas listings have become longer and uncertainty has increased in the past year. listing”.
As regulators and businesses figure out how the new measures will be implemented, institutional investors hope to better understand the government’s thinking by seeing some approval for a listing in China. abroad, he said.
Failure from China’s ride-hailing app DidiThe US IPO in late June prompted Beijing to step up regulatory scrutiny as Chinese companies are flocking to raise money in New York.
Chinese IPOs in the US have essentially dried up in the months since, while existing US-listed Chinese stocks face the risk of delisting in the coming years due to requirements Washington’s stricter audit.
Some of these Chinese companies, including Alibaba, has turned to Hong Kong for dual or secondary listings over the past few years. That way, investors can swap their US shares for shares in Hong Kong in the event of a delisting.
Hong Kong option
According to China Renaissance analysis from Bruce Pang and his team in January, only about 80 of the 250 Chinese companies listed in the United States are eligible for primary or dual listing in Hong Kong. That is due to the strict requirements in Hong Kong for minimum market capitalization and other factors.
The remaining US-listed Chinese companies will likely only have the option of privatizing, and then attempting to list on the mainland A-share market, the report said. “In fact,” the analysts said, “we don’t think Hong Kong will be exempt from the cybersecurity process – in our view, the door remains open for Beijing to impose a cybersecurity review of proposed listings in Hong Kong.”
The mainland market is less accessible to foreign investors and is dominated by more emotional retail investors.
Analysts also point out that the Hong Kong stock market doesn’t compare to New York when it comes to trading volume and the prices tech companies can get for their shares.
It remains to be seen to what extent cybersecurity scrutiny will apply to future Chinese stock offerings in Hong Kong.
Marcia Ellis, global president of the private equity fund, said that US-based, China-based companies pursuing secondary or dual listings in Hong Kong only need CAC review if the agency management determines there is a national security risk associated with the company’s products or data processing. group at Morrison & Forrester, Hong Kong.
That’s “a different threshold” than the CAC’s assessment of listings outside of China in markets like London or Singapore, Ellis said. In these cases, companies with personal data on more than 1
millions of users will need CAC approval before going public.
“The latest statements from the CAC only clarify some issues and fill some potential gaps,” she said.
The latest CAC regulation does not mention Hong Kong.
However, in Thursday’s article, the regulator said the new overseas listing regulation “does not mean that operators in the process of listing in Hong Kong can ignore the risks associated with the listing.” related to network security, data security and national security.”
Days after Didi’s listing, the CAC ordered the company to suspend new user registrations and remove its apps from app stores, while the regulator began a cybersecurity review of its potential threats. concerns about data privacy.
In December, Didi announced it planned to delist in New York and locate its headquarters in Hong Kong. The company has yet to confirm when the transition will happen, and it’s unclear if the cybersecurity review process has ended.
As of now, the stock is down more than 14% this year, after falling 64% in trading for nearly six months of 2021.
