ismagilov/iStock via Getty Images
As the new week begins, a few small IPOs hit the headlines, signaling that spring may finally be near for the stalled train of Chinese companies to list in the US. The latest submissions are any updates to previously announced pint-sized listing plans by the steel product manufacturer Hongli Group Inc. (HLP), insurance marketer UB-X Technology Ltd. and a so-called Special Purpose Acquisition Company (SPAC). TradeUp Global Corp. (TUGC)
But the really big news comes from China’s securities regulator, which was released on Saturday a document soliciting comment on proposed revisions to a rule that would allow auditors of Chinese companies to share their reports with the US Securities and Exchange Commission. The release of this document followed numerous reports in Chinese and non-Chinese media that an agreement between the China Securities Regulatory Commission (CSRC) and the US Securities and Exchange Commission (SEC) was nearing.
Given all the recent developments, we can likely expect a rally for US-listed Chinese equities on Monday. The first signs of such a rally were already evident Monday morning in Hong Kong, where shares in e-commerce giants Alibaba (BABA) (9988.HK) and JD.com (JD) (9618.HK) and search giant Baidu (BIDU) (9888.HK) are all up between 2% and 5% in early trade. All three companies were originally listed in New York, but later also started a second time in Hong Kong.
The US and China have been at odds over the issue of information sharing for the past two decades. The US Securities and Exchange Commission says it needs access to audit records of all companies trading in New York so it can investigate if it suspects financial irregularities. But China bans such access on the grounds that such audit records are “state secrets.”
To solve the problem once and for all, the US passed the Holding Foreign Companies Accountable Act (HFCAA) in late 2020, giving China three years to set up a mechanism for the information sharing the SEC is aiming for. Without such a deal, the nearly 300 Chinese companies currently listed in the US would be in violation of the HFCAA and potentially forced to delist.
The latest CSRC document is fairly typical of China, which changes rules from time to time and then solicits public comments before the new rules become official. We encourage anyone interested in the details to read the actual document. But the introduction sums up the reason for the changes well.
The revisions aim to “support domestic companies to offer and list securities in overseas markets in accordance with laws and regulations, strengthen confidentiality and record management related to the offering and listing of securities overseas by domestic companies, and improve cross-border regulatory to improve cooperation.”
“China remains committed to assisting eligible companies of all types to list or offer securities in overseas markets,” the introduction reads. “The revised regulations will further strengthen the compliance of such companies and promote a healthy and orderly offering and listing of securities abroad.” The document is dated April 2, with a deadline of April 17 for comments. That means a final revised version of the rules could become official in May or June.
resumption of flow
In the first half of last year, there have been regular new US IPO filings by Chinese companies with names like Zhihu (zh), Kanzhun (BZ) and Complete truck alliance (YMM), all of which are making relatively large offers of $100 million or more. But things came to an abrupt halt after the listing of Uber-like company DiDi Global (DIDI), which was scolded by China’s internet regulator for going public before it received a required data security clearance.
After that, a number of other large pending listings became dormant or even withdrew their applications. That list included names like shared-bike operator Hello Inc., dating app Soulgate Inc. and a dramatic 11-hour stop on an IPO for medical information provider LinkDoc Technology Ltd. (LDOC).
The listing train never really stopped completely, although it slowed down a lot. In addition, new listing applications after July were primarily from very small companies looking to raise small amounts of money, typically less than $50 million. Such companies likely did not consider themselves large enough to raise data security concerns, even though they would have faced a potential delisting under the HFCAA in 2023.
Only a handful of such listing requests actually made it to market during this period, including biotech company LianBio (LIAN) and a more recent listing of single-use medical device maker Meihua International (MHUA). Now, two companies that made previous IPO applications have just filed updated filings, possibly indicating companies may be more active as the CSRC is clearly signaling that such listings can go ahead.
One of the new updates came from Hongli, who submitted one updated prospectus last week for his plan to raise about $30 million. The company submitted its original plan in December, and there appear to be no major new changes to the updated plan. Instead, the greater significance is that the updated plan shows the listing is still progressing.
The situation is similar with UB-X Technology, whose updated prospectus The plan, filed on March 22, also does not contain any significant new information that differs from its original plan, which was filed in late January. UB-X also intends to raise approximately $30 million through the sale of 6 million shares for between $4.50 and $5.50 each.
There is also a New development by a cryptocurrency miner named string techwhich announced last September that it would be backdoor listing by merging with TradeUp Global, a SPAC founded by UP Fintech Holding Ltd. (TIGR), operator of the Online Tiger Broker. This development will result in TradeUp shareholders voting on the proposed merger on April 22nd. If they approve the transaction, which appears likely, SPAC would change its name to Sai.tech Global Corp. to change.
Again, none of these three stores seem particularly significant on their own, as all are quite small. Taken together, however, along with the CSRC’s recent announcement, they suggest that large US listings of Chinese companies could resume soon, perhaps as early as June, after China completes its rule changes and signs a new information-sharing agreement with the US
Disclosure: none
Original post
Publisher’s Note: The summary bullet points for this article were selected by Seeking Alpha editors.
Comments are closed.