By Kane Wu, Julie Zhu, Selena Li and Scott Murdoch
HONG KONG (Reuters) – More than a year after China pledged to make the overseas listing process easier, companies are reeling from a regulatory blockage that is unlikely to ease soon and are considering significantly lower valuations, even as market confidence improves.
Hopes for a resumption of overseas listings were raised by Beijing’s April pledge to facilitate IPOs in Hong Kong and by Zeekr’s strong debut in New York last month. China has cracked down on overseas capital raising since 2021.
A 6.1% year-to-date rise in the Hang Seng Index on Friday, after falling as much as 18% last year, is also expected to provide a window of opportunity for new IPO entrants .
But Chinese bankers, company executives and their investors said they expected the drought of offshore IPOs to continue this year, weighing on companies’ ability to raise capital in a struggling economy. slow-down.
Offshore listings are key fundraising channels for Chinese companies. These transactions also represent a large part of the revenue generated by global investment banks in Asia.
The lack of such deals, a result of regulatory crackdowns in China as well as capital market volatility and geopolitical tensions in recent years, has led to layoffs at banks and weighed on private equity fund returns. .
At least $20 billion in IPO proposals from Chinese companies in Hong Kong have been waiting to be approved for months, according to Reuters calculations. Bankers close to these deals say many of the larger ones probably won’t come to market anytime soon.
Home appliance maker Midea has been asked how a planned Hong Kong listing of more than $2 billion could affect the value of its Shenzhen-listed shares, Reuters reported on Wednesday.
Although monthly approval averaged around 13 IPOs in the first five months of this year, compared to 9 in nine months last year after the new rules were introduced, none of them are expected to raise more than 500 million dollars.
The China Securities Regulatory Commission (CSRC), which unveiled rules last March to strengthen oversight of offshore listings, had only approved one IPO until May 24. The regulator’s website showed on Friday that it had approved seven more filings.
In response to a request for comment sent by Reuters last Thursday, the CSRC said it has always supported domestic companies to legally tap onshore and offshore markets for financing and development purposes.
A Hong Kong-based banker, who declined to be named due to the sensitivity of the subject, however, said it sometimes took months from the IPO application to regulatory approval.
The bottlenecks are mainly caused by interdepartmental control, registration advisers said.
Chinese companies with a so-called variable interest entity (VIE) structure, common for companies with foreign investors, must obtain approval from their respective top industry regulators under the new filing regime.
But the CSRC has no authority over other government and Communist Party organs, such as the Cyberspace Authority, which has led to delays and uncertainty for businesses, advisers said.
Since the implementation of the offshore listing rules, the CSRC has “actively and orderly” processed IPO applications, and the number of companies finalizing their filing has increased every month, the regulator said.
APPROVAL PROCESS
CSRC approval, called finalization of the IPO filing, is the regulatory green light a company needs before launching an IPO – a process that ended years of a laissez-faire approach in fundraising abroad.
The approval process on average delayed an offshore offering by two to three months, with the time needed for all regulatory clearances totaling at least eight to nine months, said a senior banker at a foreign bank.
Chinese companies raised $1.5 billion in overseas IPOs as of May 17, down 21% year-on-year, LSEG data shows, well below the record $27 billion established in 2021.
The CSRC said it would continue to “optimize the supervision mechanism of overseas listing filings” and that “in the near future, more companies will successfully complete their filing.”
The lengthy regulatory process comes on top of China’s slowdown and real estate crisis, which have made issuers and investors wary of stock offerings and company valuations.
JD Industrials, a VIE structured company, whose application for listing in Hong Kong was filed over a year ago, is still awaiting approval pending additional documents, according to a regulatory disclosure.
Its parent company JD.COM withdrew the listing of another unit, JD Property, after the last filing on the Hong Kong stock exchange expired, two sources familiar with the matter said.
JD Property did not obtain clearance from the CSRC, they said, although it was unclear whether regulatory hurdles were the reason for the withdrawal.
JD.com, the parent company of JD Industrial and JD Property, did not respond to Reuters’ request for comment.
Some IPO applicants fear they will have to list at lower valuations if demand wanes by the time approval is granted, said a banker and senior executive of a potential IPO applicant .
Others accepted the slow pace of approvals and did not seek to pressure regulators, they added.
“In the past, regulators often quietly supported companies seeking to go public overseas. Today, the political incentives have completely changed,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
“There are a lot of downside risks to supporting an overseas listing, but not a lot of upside.”
(Reporting by Kane Wu, Julie Zhu and Selena Li in Hong Kong and Scott Murdoch in Sydney; Additional reporting by Sophie Yu and Jenny Yu in Beijing; Editing by Sumeet Chatterjee and Jacqueline Wong)
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