IPOs by companies with operations in China in the US stock markets is likely to stall over the remaining months of the year, Chinese industry insiders and securities experts said on Friday, after the US Securities and Exchange Commission (SEC) said such IPO hopefuls need to provide additional risk disclosures on Friday.
In a Friday statement, SEC said IPO filings by issuers associated with China-based operating firms won’t be declared effective unless they provide certain disclosures.
Companies affected by the new rule are China-based operating companies structured as Variable Interest Entities (VIEs).
In an earlier report on Friday, Reuters disclosed that the US securities regulator will halt processing Chinese company listings.
Shares of US-listed Chinese stocks opened lower on Friday trading. NetEase plunged by over 10 percent, Bilibili fell by 7 percent while Alibaba slid 3 percent.
The new curbs set on Chinese IPO hopefuls, reputed by market observers as politically motivated, contrast with China’s pledge to continue its market opening while taking an open approach to its businesses’ choices of listing destinations.
The Chinese securities regulator mentioned it is open to let companies choose where to go public and supports them in making choices based on their own development needs, the official Xinhua News Agency said in a much-quoted commentary late Wednesday.
If the US regulator indeed suspends the Chinese IPOs it will be a big setback for US capital markets, meaning they will no longer live up to the name of an international free market without Chinese participation, Dong Dengxin, director of the Finance and Securities Institute of Wuhan University, told the Global Times on Friday.
Dong noted that there won’t be a big impact on such companies as they can choose to be listed on the Hong Kong Stock Exchanges which can offer complete substitution for NASDAQ and New York Stock Exchange.
“HKEX has been well prepared for mainland IPOs and second listing for over years. Now it is able to rival the US market in term of raising foreign investment, providing financing convenience and making international business connection whereas the latter has become a political tool,” he said.
Chen Da, executive director of Anlan Capital, said that the new rule by SEC will likely mean there won’t be any more IPOs by companies of this kind in the US for the remaining months of the year.
“There aren’t too many anyway, given that some of the companies have withdrawn on their own decision,” Chen said.
Some Chinese companies including LinkDoc Technologies and Hello Inc canceled their US IPOs this month.
For those already listed in the US, Chen said the impact would be temporary as investors will still appreciate their value.
Chinese listings in the US have reached a record $12.8 billion so far this year, according to Reuters’s Refinitiv data.
“Chinese enterprises will also gradually abandon the US market, as listing in the US poses growing risks and costs following the US’ crackdown on Chinese companies,” Dong said.
“In the past two years, large Internet and new economy companies have all seen HKEX as their first choice,” he said.