Af­ter the IPO freeze

As the China-US IPO pipe­line restarts, re­cent his­tory of­fers lessons for com­pa­nies, in­vestors and reg­u­la­tors, China Daily’s Michael Barris re­ports from New York.

China Daily (Canada) - - IN DEPTH -

Alan Guo’s few words said it all. Asked in June whether the IPO of online re­tailer LightInTheBox would restart the China-US IPO pipe­line, the CEO replied: “I can only speak for LightInTheBox. We are a unique com­pany. Ev­ery com­pany needs to go through their own process to get re­sults.”

The com­pany’s strong, widely watched de­but on the New York Stock Ex­change (NYSE) ended a seven-month drought of ini­tial pub­lic of­fer­ings in the United States for Chi­nese com­pa­nies, a sign that a trou­bled chap­ter of US-China fi­nan­cial his­tory per­haps was clos­ing.

Amid a rash of fraud and ac­count­ing scan­dals, more than 100 Chi­nese com­pa­nies listed on the NYSE were delisted or sus­pended from trad­ing through 2011 and 2012. The plunge in share prices as cross-bor­der Chi­nese list­ings col­lapsed wiped out more than $40 bil­lion of value, send­ing in­vestor sen­ti­ment into a deep freeze and ush­er­ing in an era of mis­trust of US-traded Chi­nese shares. The num­ber of US IPOs from Chi­nese com­pa­nies dived to two in 2012 from 11 in 2011 and 41 in 2010. thought­ful”.

Go­ing pub­lic is “a strate­gic de­ci­sion that most com­pa­nies will only make once,” the re­port said. Com­pa­nies plan­ning to go pub­lic and their ad­vis­ers must re­sist the urge to be in­flu­enced by “emo­tive fac­tors and pres­tige” and seek a spot in a mar­ket that fits their spe­cialty and eco­nomic char­ac­ter­is­tics.

For in­stance, the re­port said, while US mar­kets are “com­fort­able with larger and bet­ter­known Chi­nese com­pa­nies, many of which are sig­nif­i­cant on a global level”, they are “not con­fi­dent with smaller, less-well-known ones”.

Com­pa­nies also are urged to go where the best ad­vis­ers are. Ex­per­tise in Chi­nese-main­land com­pa­nies tends to be con­cen­trated in Hong Kong while Toronto has a con­cen­tra­tion of ex­perts in ju­nior min­ers. Lon­don is home to ex­perts in large re­source com­pa­nies, and the United States in tech­nol­ogy com­pa­nies, ac­cord­ing to the re­port.

Al­though cross-bor­der list­ings will “con­tinue to be valu­able for com­pa­nies, in­vestors, and ex­changes alike,” the les­son of the Chi­nese delist­ing de­ba­cle is that “each must be more cir­cum­spect in their ap­proach and take con­crete steps to avoid a re­peat”, ac­cord­ing to the re­port.

Cogman said his rec­om­men­da­tions are em­i­nently im­ple­mentable.

“There is a long-stand­ing his­tory of col­lab­o­ra­tion be­tween other pairs of coun­tries,” he wrote in the email. “Even though reg­u­la­tors don’t al­ways agree and don’t pur­sue ex­actly the same ob­jec­tives, they are able to reach prag­matic com­pro­mises.”

Given the lack of his­tory be­tween the SEC and its Chi­nese coun­ter­part, the Chi­nese Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, “fa­mil­iar­ity and trust on both sides will need to be de­vel­oped”, Cogman said.

“That said, look­ing at the achieve­ments in fi­nan­cial reg­u­la­tion in China in the past decade — for ex­am­ple, new ac­count­ing stan­dards based on in­ter­na­tional stan­dards — it should be pos­si­ble to work out a way to han­dle cross-bor­der reg­u­la­tory over­sight as well,” he said. “Reg­u­la­tory changes in the US could also ben­e­fit com­pa­nies from other coun­tries that are in­ter­ested in be­ing listed in the US.”

Cogman said he sees signs that the new­est US-traded Chi­nese com­pa­nies are avoid­ing the pit­falls that char­ac­ter­ized the ear­lier col­lapse.

“The types of com­pa­nies now com­ing to mar­ket are gen­er­ally com­pa­nies where there is a good logic for them list­ing in the US vs. list­ing else­where, and they have busi­nesses that are well-un­der­stood by the US in­vest­ment com­mu­nity,” Cogman wrote.

“So we’re see­ing list­ings that on the whole make sense, un­like what we’ve seen at times in the past when there was an IPO pipe­line of mid-mar­ket com­pa­nies that didn’t re­ally be­long in the US eq­uity mar­kets.”

Still, he said, it is “early days: the pipe­line of Chi­nese com­pa­nies in­ter­ested in a US list­ing only re­cently re-started and we haven’t seen many list­ings yet”. Con­tact the writer at michael­bar­ris@chi­nadai­


China’s online sports lot­tery ser­vice provider started trad­ing at the New York Stock Ex­change on Nov 22 in New York.

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