U.S.-listed Chinese companies need Beijing’s approval for secondary listings
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A Beijing brokerage office displays stock information to an investor.
Thomas Peter | Reuters
BEIJING — If U.S. regulation forces Chinese companies to delist from New York, new rules from Beijing further complicates their path to raising money in public markets abroad.
The Cyberspace Administration of China has issued new regulations requiring Chinese internet platform companies to have personal data of at least 1 million Chinese users. get approval before listing overseas.
Companies that have been publicly traded are exempt from the regulations, but those who want to list overseas dual listings or secondary listings must apply for approval by the CAC, as per a CNBC translation. article published Thursday on the regulator’s website.
International investors who are interested in Chinese companies should also consider this.
According to CNBC’s translation, Ming Liao (founder partner at Beijing-based Prospect Avenue Capital), “The timeline for overseas listing companies has become longer” and that uncertainty for listing has grown, said Ming Liao.
He said that as regulators and companies work out the details of the new measures, institutions investors will hopefully be able to understand government thinking better by looking at approvals for listings overseas.
Chinese ride-hailing app fallsout DidiBeijing raised regulatory concerns about the rush of Chinese companies raising money in New York following the U.S.IPO that took place in June.
In the United States, Chinese IPOs have virtually dried up since then. Existing U.S.-listed Chinese stocks are now at risk of being delisted in future years due to Washington’s stricter audit requirements.
These Chinese companies include AlibabaIn recent years, many investors have turned towards Hong Kong to obtain secondary listing or dual listings. Investors could then swap U.S. stocks for Hong Kong shares in case of delisting.
Option Hong Kong
China Renaissance Analysis by Bruce Pang (and his team) in January found that only 80 percent of the 250 U.S.-listed Chinese businesses would qualify for either a primary or secondary listing in Hong Kong. This is due to strict requirements in Hong Kong regarding minimum market capitalization, and other factors.
Report stated that the remaining U.S.-listed Chinese businesses would be limited to privatizing the company and then trying to get a listing on the mainland’s A share market. “In practice,” the analysts said, “we think Hong Kong will not be exempted from the cybersecurity process – the door is still open, in our opinion, for Beijing to impose a cybersecurity review on proposed listings in Hong Kong.”
It is harder for foreign investors to get into the market and it is heavily dominated in this area by retail investors who are more motivated by sentiment.
Analysts point out that the Hong Kong stock exchange is not comparable to New York in terms of trading volume or the prices tech companies are able to get for their shares.
Future Chinese stock offering in Hong Kong will be subject to cybersecurity inspection.
U.S.-listed, China-based companies that pursue secondary or dual listings in Hong Kong only need the CAC’s review if the regulator identifies a national security risk related to the companies’ products or data processing, said Marcia Ellis, global chair of the private equity group at Morrison & Forrester, Hong Kong.
Ellis explained that it is “a different threshold than the CAC Review required for listing in China outside China, such as London and Singapore.” These cases will apply to companies that have personal data on over 1
Before going public, millions of users would require CAC approval.
She stated that “Effectively CAC’s most recent statements have clarified some matters and filled in some loopholes.”
Hong Kong was not included in the most recent CAC regulation.
The regulator stated that its overseas listing regulation does not allow operators to ignore network security, national security or data security concerns in Thursday’s article.
The CAC placed an order on Didi to stop new registrations, remove the app from the app store, and conduct a review of cybersecurity concerns.
Didi, which announced its intention to delist New York in December and relist Hong Kong on the New York Stock Exchange, made this announcement. It is not clear when the transition will occur and if cybersecurity reviews have ended.
After a 64% drop in trading over the six-months of 2021, shares are now down by more than 14%.
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