Asia News Aug 14

Chinese IPOs rush to US despite delisting risks

Driven by the allure of the world's deepest stock market, Chinese companies are rushing forward with IPO plans despite a push by the Trump administration for them to adhere to US accounting standards 

by Reuters
Chinese IPOs rush to US despite delisting risks
The Shanghai Stock Exchange. Photo: iStock

The US government is threatening to delist Chinese companies that do not meet US accounting standards, but mainland firms are rushing to offer their shares on New York exchanges, sometimes in blockbuster deals.

Despite the threat and rising US-China tensions, the allure of a valuation on the world's deepest stock market makes the risk of eventual delisting manageable, while financial-technology companies find the regulatory burden of a US listing lighter than that in mainland China or Hong Kong, companies, advisers and investors say.

"In the immediate term, I don’t see this impacting views of the US markets as a strong choice of listing venue," said Jason Elder, a Hong Kong based partner at law firm Mayer Brown.

So far this year, Chinese companies have raised $5.23 billion in US initial public offerings, more than double the $2.46 billion for the same period last year, Refinitiv data show.

Property management company KE Holdings, backed by Chinese tech giant Tencent Holdings Ltd and Japan's SoftBank Group Corp, raised $2.12 billion in its US listing on Thursday, the 18th Chinese firm to list there this year.

Pressure on Chinese firms

To put pressure on Beijing amid the coronavirus pandemic and to tighten controls in Hong Kong, US President Donald Trump directed the White House task force on June 4 to assess the risks posed by Chinese stocks to American investors.

The move followed was also a result of a series of accounting scandals this year, most notably the one involving Luckin Coffee, which lost most of its market value after cooking its books to the extent of $300 million in fictitious sales.

Besides, the US Securities and Exchange Commission (SEC), is expected to publish new rules that e tightens requirements for new Chinese IPOs. For Chinese companies already listed, a deadline Jan. 1, 2022 has been set to comply with the audit records disclosure requirement, which conflicts with Chinese secrecy laws. Failure to comply would lead to delisting, the SEC mandated.

The pricing for KE, widely known as Beike, came just three days after Treasury Secretary Steven Mnuchin said Chinese companies that do not comply with US accounting standards would be delisted at the end of 2021.

Chinese companies undaunted

CEO Stanley Peng told Reuters on Thursday Beike had planned to list for two years and saw the delisting threat as minimal.

Beike will be followed by Xpeng, an electronic-vehicle maker, which has filed for an IPO. Lufax, an online wealth-management firm, has lodged a confidential application for a US listing, a person with direct knowledge of the deal told Reuters. The company did not respond to a request for comment.

A Hong Kong asset manager who bought into Beike and Li Auto Inc's $1.1 billion IPO two weeks ago said US-China tensions have not whetted his appetite.

"The only things that are going to make me worried are when US pension funds are prohibited from investing in Chinese IPOs or when China and the US engage in conflict," said the fund manager, who asked not to be named as he is not authorised to speak to the media.

Financial advisers to listing candidates said some companies were not being deterred from US listings because the rules have yet to be implemented and there is the potential for "co-auditing" in the United States.

In a potential concession, the auditing can be performed by a US parent company of the China-based affiliate tasked with auditing the Chinese firm. Still, new companies would have to comply immediately, officials said over the weekend.

Read more: China’s A-share markets saw IPO boom in July 

Reporting by Scott Murdoch, Kane Wu and Julie Zhu in Hong Kong, Yingzhi Yang in Beijing and Shanghai Newsroom; Editing by William Mallard: Reuters