Scott Murdoch and Kane Wu, Selena Li

HONG KONG (Reuters), Despite the increased scrutiny and complexity of new regulatory changes, global investment banks are still keen to work with Chinese companies overseas. This is according to multiple sources.

Last week, the China Securities Regulatory Commission proposed new rules regarding overseas listing. These include a requirement for banks to register as registrants with regulators if they manage a Chinese company’s offshore listing.

A report must be filed by foreign banks each year, starting Jan. 31, detailing offshore listings for Chinese companies.

The registration process is complex and what information is required to make the reports are not known. However, the source, who included investment bankers as well as lawyers involved in overseas listing, stated that the requirements were unique and unprecedented.

The west will need to weigh their desire to earn millions of dollars by helping Chinese companies list offshore on bourses against the costs of more oversight.

They want the international banks to be as responsible for listing A-shares as they are for other listings,” stated one source, a Hong Kong capital market banker working with a European investment bank. He was referring to initial public offerings on Chinese exchanges.

I don’t believe it’s great but that is not to say its not amazing. This is a way to improve their transparency and provide them with a better understanding of the overseas transactions that are being made.

Because of the sensitive nature and importance of the matter, the name of the banker was withheld.

According to data from Refinitiv, the fee income generated by American public offerings of Chinese companies in America was $1.6 billion between 2016 and 2020. Listings generated fees of $486million in this year.

That was however, all in the first six months of 2021. Since June there has not been any new offshore listing. Regulators announced that they would be drafting new rules to combat anti-competitive behavior and other data privacy violations.

Bankers and analysts believe plans to strengthen oversight of mainland companies’ sales of shares overseas may help ease financial market uncertainty, which has caused chaos and delayed listings.

TIGHTER CONTROL

Bankers in New York and Hong Kong do most of the work involved with offshore listing Chinese companies.

In most cases, the securities regulator supervises capital market underwriters.

A Shanghai-based partner from a Chinese legal firm said that registering offshore underwriters with the CSRC was an unprecedented move because Chinese authorities don’t have any “extra territory jurisdiction”.

A tighter regulatory oversight is designed to ensure accountability for companies that violate rules or commit wrongdoing after listing, as per the legal and banking sources.

Frank Bi of Ashurst LLP, a Hong Kong partner who focuses his attention on capital markets and is based in Hong Kong said “This basically means that the Chinese regulators will continue to examine the coverage or business of international underwriters.”

This unprecedented request is expected to cause concern among international banks regarding mandate approval.

According to the new rules, the CSRC may report any malpractice to offshore regulatory authorities of offending banks and the underwriter could be expelled for up to three months.

Some bankers are not at all bothered by the changes.

We will file if we’re required. “It’s not an important deal for us,” stated a Hong Kong-based senior Wall Street investment banker. He declined to identify himself as he wasn’t authorized to talk to media.