An investor sits in front of a board displaying stock information at a brokerage office in Beijing, China.
Thomas Stone | Reuters
BEIJING — While U.S. regulations force Chinese companies to drop from New York’s listing, Beijing’s new rules further complicate their path to fundraising in overseas public markets.
Since Tuesday, new rules from China’s Cyberspace Administration require Chinese internet platform companies with personal data of more than 1 million users to obtain approval before registering overseas.
While the rules don’t apply to companies that have already gone public, those seeking a dual or secondary listing overseas must follow the new CAC approval process, according to a CNBC translation of a Chinese article published Thursday on the regulator’s website.
This is yet another consideration for international investors looking at Chinese companies.
“The schedule for companies’ overseas listings has become longer and uncertainty has increased for the listing,” said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, according to a CNBC translation of the Chinese remarks.
As regulators and companies determine how the new measures will be implemented, institutional investors hope to better understand the government’s thinking by seeing some approvals for overseas listings, he said.
The fallout from the Chinese app Didi’s IPO in the United States in late June prompted Beijing to tighten regulatory scrutiny over what was a stampede of Chinese companies seeking to raise funds in New York.
Chinese IPOs in the U.S. have essentially dried up in the months since, while existing Chinese stocks listed in the U.S. are at risk of delisting in the coming years due to stricter audit requirements. from Washington.
Several of these Chinese companies, including Alibaba, have looked to Hong Kong for dual or secondary listings in recent years. This way, investors could swap their US stocks for stocks in Hong Kong in the event of a delisting.
Only about 80 of the 250 Chinese companies listed in the United States would be eligible for a secondary or dual primary listing in Hong Kong, according to China Renaissance analysis by Bruce Pang and his team in January. This is due to Hong Kong’s strict minimum market capitalization requirements and other factors.
Other Chinese companies listed in the United States would likely have no choice but to go private and then attempt a listing on the mainland A-share market, according to the report. “In practice,” the analysts said, “we believe Hong Kong will not be exempt from the cybersecurity process – the door is still open, in our view, for Beijing to impose a cybersecurity review on proposed listings in Hong Kong. Kong”.
The mainland market is less accessible to foreign investors and is dominated by more sentiment-driven retail investors.
Analysts also point out that the Hong Kong stock market does not compare to New York when it comes to trading volume and the price tech companies can get for their shares.
It remains to be seen to what extent the cybersecurity scrutiny will apply to future Chinese stock offerings in Hong Kong.
Chinese companies listed in the United States seeking a secondary or dual listing in Hong Kong only need CAC review if the regulator identifies a national security risk related to the companies’ products or data processing. said Marcia Ellis, global president of group private equity at Morrison & Forrester, Hong Kong.
It is “a different threshold” from the CAC review required for listings outside of China in markets such as London or Singapore, Ellis said. In these cases, companies having personal data on more than one
million users would need CAC approval before going public.
“Indeed, the latest statements from the ACC have just clarified a few points and filled in some potential gaps,” she said.
The latest CAC regulations do not mention Hong Kong.
However, in Thursday’s article, the regulator said its new overseas listing regulations “do not mean that operators currently listing in Hong Kong can ignore relevant network security risks, data security and national security”.
Days after Didi’s listing, the CAC ordered the company to suspend new user registrations and remove its app from app stores, while the regulator began a cybersecurity review into the issues. data privacy.
In December, Didi announced his intention to withdraw from New York and re-register in Hong Kong. The company has yet to confirm when this transition will take place, and it’s unclear if the cybersecurity review is complete.
Shares are down more than 14% so far this year, after falling 64% in the roughly six trading months of 2021.