An investor sits in front of a board of directors showing stock information at a brokerage office in Beijing, China.
Thomas Peter | Reuters
BEIJING – If U.S. law forces Chinese companies to delist from New York, new rules from Beijing further complicate their path to raising money in public markets abroad.
Since Tuesday, new rules from the Cyberspace Administration of China have required Chinese Internet platform companies with personal data of more than 1 million users to get approval before listing abroad.
Although the rules do not apply to companies that have already been listed, those pursuing double or secondary listings abroad must follow CAC’s new approval process, according to a CNBC translation by a Chinese article published Thursday on the regulator’s website.
This is another consideration for international investors looking at Chinese companies.
“The schedule for companies’ overseas listings has lengthened, and the uncertainty for listing has increased,” said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, according to a CNBC translation of the Chinese remarks.
As regulators and companies find out how the new measures will be implemented, institutional investors hope to better understand the government’s mindset by seeing some approvals for overseas listings, he said.
Fallout from Chinese ride-hailing app Didi‘s US IPO in late June prompted Beijing to increase regulatory control over what was a rush of Chinese companies seeking to raise money in New York.
Chinese IPOs in the US have largely dried up in recent months, while existing US-listed Chinese stocks face the threat of being delisted in the coming years from Washington’s stricter audit requirements.
Several of these Chinese companies, including Alibaba, has approached Hong Kong for double or secondary listings in the last few years. That way, investors could swap their U.S. stocks with those in Hong Kong in the event of a delisting.
Only about 80 out of 250 U.S. listed Chinese companies 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 strict requirements in Hong Kong for minimum market value and other factors.
The remaining U.S. listed Chinese companies would likely only have the choice between privatizing and then trying to get listed on the mainland A-share market, the report said. “In practice,” analysts said, “we believe Hong Kong will not be exempted from the cybersecurity process – in our view, the door is still open for Beijing to impose a cybersecurity review of proposed listings in Hong Kong.”
The mainland market is less accessible to foreign investors and is dominated by more sentiment-driven retail investors.
Analysts also point out that Hong Kong’s stock market is not comparable to New York when it comes to trading volume and the price that technology companies can get for their stocks.
It is still unknown to what extent cybersecurity control will apply to future Chinese stock offerings in Hong Kong.
US-listed, China-based companies pursuing secondary or dual IPOs 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 president of private equity. group at Morrison & Forrester, Hong Kong.
That’s “another threshold” from the CAC review required for listings outside China in markets like London or Singapore, Ellis said. In these cases, companies with personal data of more than 1
million users would need CAC approval before they were published.
“CAC’s recent statements actually clarified just a few matters and closed some potential loopholes,” she said.
The latest CAC regulation does not mention Hong Kong.
But in Thursday’s article, the regulator said its new overseas listing regulation “does not mean that operators in the process of listing in Hong Kong can ignore the relevant network security, data security and national security risks.”
Days after Didi’s listing, CAC ordered the company to suspend new user registrations and remove its app from app stores, while the regulator began a cybersecurity review of data protection concerns.
In December, Didi announced that it planned to delist from New York and re-list in Hong Kong. The company has not yet confirmed when this transition will take place, and it is unclear whether the cybersecurity review has been completed.
Shares have fallen more than 14% so far this year after falling 64% in the roughly six months of 2021 trading.