China-based companies postpone US listing plans as tensions between the world’s two major economies rise, lawyers, bankers, accountants and regulators told Reuters major in raising capital.
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The drop in interest, particularly from those in the early stages of planning, is the result of an American bill that would make it harder for some Chinese companies to start in America and under close scrutiny. following an accounting scandal over Chinese rival Starbucks Luckin Coffee.
“We have seen clients suspend plans to go public in the United States for the time being,” said Stephen Chan, partner with the law firm Dechert LLP in Hong Kong. “The underlying reason for this slowdown is the relationship between the United States and China,” he added.
“If tensions between the two nations persist, we expect the slowdown to continue,” said Chan.
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Chinese groups have raised $ 1.67 billion in the first public offerings in New York this year and are looking to raise about half a billion more on American stock exchanges, according to Dealogic data.
In 2019, they raised $ 3.5 billion.
Sino-US relations have collapsed in recent months with countries already at odds over trade, hitting their heads in the face of the COVID-19 pandemic and China’s national security bill for Hong Kong.
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Inquiries about U.S. registrations fell by half this year in one of the big four accounting firms in China compared to 2019, said a chief auditor of the firm.
Many companies that have raised their plans for listing in the United States with the Chinese securities regulator, marking an early stage in the process, are now targeting exchanges closer to home, said a close associate. of the regulatory authority.
The China Securities Regulatory Commission did not respond to requests for comment, while the U.S. Securities and Exchange Commission declined to comment.
Registrations take at least several months to organize, involving the appointment of advisers, the preparation of a prospectus and obtaining regulatory approvals. The further along a business, the less likely it is to change plans.
Chinese companies have accounted for about a third, or some $ 279 billion, of the funds raised worldwide through IPOs in the past five years. About half of that was overseas, mostly via floats from New York and Hong Kong.
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There are more than 550 Chinese companies listed on the US stock exchanges. Chinese companies often choose New York for floats because of its prestige and international investor base, even if Beijing seeks to encourage them to register with them to share the gains between local investors and limit foreign surveillance .
Chinese authorities have long resisted audit documents leaving China, making it difficult for US supervisors to verify the quality of audits of Chinese companies.
But a bill passed by the United States Senate which, if signed by President Donald Trump, would require foreign companies listed in the United States to disclose levels of government control. It would also require Chinese companies to comply with, or be struck off, US oversight of their audits.
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“For US investors, it will mean fewer quotes and it will be more difficult to grasp the benefits of growth in China,” said John Ott, partner of Bain & Company and leader of his financial services practice in the Great China.
Chinese companies listed in the United States have begun to disclose the risk of a “negative impact” on their shares due to tighter regulations.
Kingsoft Cloud Holdings Ltd, the first Chinese company to brave New York since the Luckin scandal, warned that efforts to increase US access to audit information regulations “could create uncertainty for investors for the issuers concerned, including us ”.
Netease and JD.com have also warned of similar risks in their recent filings with the Hong Kong Stock Exchange for secondary listings in the city.
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