Gulf Today

Chinese firms’ fundraisin­gs in limbo as IPOS scrutinise­d at home, abroad

China’s securities watchdog has sharply tightened scrutiny of IPOS this year, leading to companies scrapping domestic listing plans in droves


Chinese companies are staring at the prospects of a drought of new equity capital as tougher domestic IPO rules and challenges in listing overseas severely curb their fundraisin­gs, putting at risk the flounderin­g economy’s recovery.

China’s securities watchdog has sharply tightened scrutiny of IPOS this year, leading to companies scrapping domestic listing plans in droves, with some turning to offshore markets such as Hong Kong and New York.

However, sharper scrutiny of IPO hopefuls in the US amid geopolitic­al tensions and a weaker Hong Kong market will stymie offshore listings for many, highlighte­d by Alibaba’s move this week to ditch the Hong Kong IPO plan of its logistics unit.

During January-march 2024, money raised via China IPOS plunged two-thirds from a year ago to just $2.4 billion, the smallest quarterly fundraisin­g since the fourth quarter of 2018, and down 82 per cent from a year earlier, preliminar­y LSEG data showed.

The sudden freeze of an IPO market that was the world’s biggest in 2023 and 2022 comes ater the securities watchdog, under new chairman Wu Qing, vowed to step up scrutiny of listing candidates and crack down on any lapses.

The IPO tightening “would make it increasing­ly difficult for small companies to raise capital” and for private equity investment to exit, said Andrew Qian, CEO of Shanghai-based investment and advisory firm New Access Capital.

“IPOS in China will become scarce resources,” said Qian, who is now helping some companies list on Nasdaq instead.

For venture capitalist­s, the difficulty to exit will, in turn, lead to difficulty in fundraisin­g, and “it would be increasing­ly challengin­g to invest in early-stage, small, hi-tech companies”, said Qian.

These are the kinds of companies that are the crucial drivers of economic growth and employment in China.

The sharp plunge in IPOS comes against the backdrop of a stock market rout at the beginning of the year ater mainland shares lagged global stocks for three years, and deflation at levels unseen since the global financial crisis of 2008-09.

Raising debt and private capital is tough too for small-sized companies, mainly technology startups, due to their early-stage business models and weaker credit profile. This is likely to leave some with litle choice other than to rein in growth plans and cut costs.

“When the economy is slowing, you should make use of the capital markets to help companies wade through difficulti­es as soon as possible,” said Yang Chongyi, a financial adviser who helps Chinese companies list overseas.

So far this year, though, the Shanghai and Shenzhen stock exchanges have accepted zero IPO applicatio­ns.

China this month unveiled a set of rules to tighten scrutiny over IPOS, public companies and underwrite­rs. In addition, it curbed IPOS also to reduce equity supply and ease selling pressure in a wobbly secondary market.

With the tighter scrutiny and shrinking liquidity triggering uncertaint­y about domestic listings, many companies are giving up hopes to list - more than 80 IPO candidates in China have terminated their plans to list at home so far this year.

Companies and underwrite­rs “dare not” apply now as “once you hand in your applicatio­n, you become vulnerable to punishment for fraud or negligence as regulators start poring over the materials,” said a banker on condition of anonymity.

The banker said he is advising some clients to go offshore.

So far this year, 38 Chinese companies have applied to list overseas, according data from the China Securities Regulatory Commission (CSRC), which vets such share sales under a one-year-old filing system.

Five of them, including Kepuni Holdings and Huajin (China) Holdings Ltd, are aiming for a US listing, while the rest are eyeing Hong Kong.

“There’s more certainty in Hong Kong’s stock market. Or put it another way, there’ re very clear rules in that market,” said Tang Jinghua, chairman of Shanghai Voicecomm Informatio­n Technology Co, which got CSRC’S nod this month.

Tang said the company will still seek a mainland listing in future.

Jiangsu Guofu Hydrogen Energy Equipment Co, another Chinese company seeking a Hong Kong listing, said it scrapped a plan to list in Shanghai “considerin­g the uncertaint­y of the overall veting process” according to an exchange filing on March 20.

Sino-us tensions and weaker Hong Kong markets are, however, not going to make offshore listing easier - Alibaba dropped plans to list its Cainiao unit in Hong Kong citing dour “overall environmen­t for doing capital markets” deals.

Chinese firms also need to go through a regulatory approval process, kicked off last April, to list offshore.

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Mainland Chinese tourists walk in front of the skyline of buildings at Tsim Sha Tsui, in Hong Kong, China.
Reuters ↑ Mainland Chinese tourists walk in front of the skyline of buildings at Tsim Sha Tsui, in Hong Kong, China.

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