U.S.-listed Chinese companies need Beijing’s approval for secondary listings

BEIJING — If U.S. regulation forces Chinese language firms to delist from New York, new guidelines from Beijing additional complicates their path to elevating cash in public markets overseas.

Since Tuesday, new guidelines from the Our on-line world Administration of China require Chinese language web platform firms with private knowledge of greater than 1 million customers to get approval earlier than itemizing abroad.

Whereas the foundations don’t apply to firms which have already gone public, these pursuing twin or secondary listings abroad should observe the CAC’s new approval course of, based on a CNBC translation of a Chinese language article revealed Thursday on the regulator’s web site.

It is one more consideration for worldwide buyers Chinese language firms.

“The timetable for firms’ abroad listings has change into longer, and uncertainty has elevated for itemizing,” mentioned Ming Liao, founding associate of Beijing-based Prospect Avenue Capital, based on a CNBC translation of the Chinese language remarks.

As regulators and companies work out how the brand new measures can be carried out, institutional buyers hope to raised perceive the federal government’s pondering by seeing some approvals for abroad listings, he mentioned.

Fallout from Chinese language ride-hailing app Didi’s U.S. IPO in late June prompted Beijing to extend regulatory scrutiny on what was a rush of Chinese language firms seeking to increase cash in New York.

Chinese language IPOs within the U.S. have primarily dried up within the months since, whereas present U.S.-listed Chinese language shares face the specter of delisting in coming years from Washington’s extra stringent audit necessities.

A number of of those Chinese language firms, together with Alibaba, have turned to Hong Kong for twin or secondary listings in the previous couple of years. That method buyers might swap their U.S. shares for ones in Hong Kong within the occasion of a delisting.

Solely about 80 of 250 U.S.-listed Chinese language firms can be eligible for a secondary or twin main itemizing in Hong Kong, based on China Renaissance evaluation from Bruce Pang and his staff in January. That is attributable to stringent necessities in Hong Kong for minimal market capitalization and different components.

The remaining U.S.-listed Chinese language firms would possible solely have the selection of privatizing, after which trying a list within the mainland A share market, the report mentioned. “In observe,” the analysts mentioned, “we predict Hong Kong is not going to be exempted from the cybersecurity course of – the door remains to be open, in our opinion, for Beijing to impose a cybersecurity evaluate on proposed listings in Hong Kong.”

The mainland market is much less accessible to international buyers and is dominated by extra sentiment-driven retail buyers.

Analysts additionally level out the Hong Kong inventory market does not evaluate with New York in the case of buying and selling quantity and the worth tech firms can get for his or her shares.

It stays to be seen to what extent cybersecurity scrutiny will apply to future Chinese language inventory choices in Hong Kong.

U.S.-listed, China-based firms that pursue secondary or twin listings in Hong Kong solely want the CAC’s evaluate if the regulator identifies a nationwide safety danger associated to the businesses’ merchandise or knowledge processing, mentioned Marcia Ellis, world chair of the non-public fairness group at Morrison & Forrester, Hong Kong.

That is “a unique threshold” from the CAC evaluate required for listings outdoors of China in markets comparable to London or Singapore, Ellis mentioned. In these instances, firms with private knowledge on greater than 1

million customers would want CAC approval earlier than going public.

“Successfully CAC’s newest statements simply clarified a few issues and plugged up some potential loopholes,” she mentioned.

The newest CAC regulation doesn’t point out Hong Kong.

Nevertheless, in Thursday’s article, the regulator mentioned its new abroad listings regulation “doesn’t imply operators within the strategy of itemizing in Hong Kong can ignore the related community safety, knowledge safety and nationwide safety dangers.”

Days after Didi’s itemizing, the CAC ordered the corporate to droop new person registrations and take away its app from app shops, whereas the regulator started a cybersecurity evaluate over knowledge privateness considerations.

In December, Didi introduced it deliberate to delist from New York and relist in Hong Kong. The corporate has but to substantiate when that transition would happen, and it is unclear whether or not the cybersecurity evaluate has ended.

Shares are down greater than 14% to date this yr, after a drop of 64% within the roughly six months of 2021 buying and selling.