Kane Wu, Julie Zhu, Selena Lee and Scott Murdock
HONG KONG (Reuters) – More than a year after China promised to ease the listing process for offshore companies, companies are reeling from a regulatory logjam that is unlikely to be resolved soon and face prospects of sharply lower valuations even as sentiment improves. market.
Hopes for a revival of overseas listings were raised following Beijing’s April pledge to ease IPOs in Hong Kong and Zeekr’s successful debut in New York last month. China will limit the attraction of offshore capital from 2021.
The 6.1% year-to-date jump as of Friday, after falling as much as 18% last year, was also expected to open a window of opportunity for IPO bidders.
But bankers, Chinese company executives and their investors said they expect the offshore IPO drought to continue this year, hampering companies’ ability to raise capital as the economy slows.
Offshore listings are a critical fundraising channel for Chinese companies. These deals also make up the majority of global investment banks’ revenues in Asia.
The lack of such deals as a result of Chinese regulatory measures, as well as volatile capital markets and geopolitical tensions over the past couple of years has led to layoffs at banks and negatively impacted the returns of private equity funds.
Chinese firms’ proposals for IPOs in Hong Kong worth at least $20 billion have been awaiting approval for months, according to Reuters calculations. Bankers close to the deals say most of the big deals are unlikely to hit the market anytime soon.
Home appliance maker Midea has been asked how a planned listing in Hong Kong valued at more than $2 billion could affect the value of its Shenzhen-listed shares, Reuters reported on Wednesday.
While monthly approvals have risen to an average of about 13 IPOs in the first five months of this year, up from 9 in the nine months last year after the new rules were introduced, none are expected to exceed $500 million.
The China Securities Regulatory Commission (CSRC), which unveiled rules to strengthen supervision of offshore listings in March last year, has approved only one IPO until May 24. The regulator’s website said on Friday it had approved seven more applications.
In response to a Reuters request for comment last Thursday, the CSRC said it has always supported domestic companies to legally exploit both domestic and offshore markets for financing and development purposes.
However, a Hong Kong banker who declined to be named due to the sensitivity of the matter said it sometimes takes months from filing an IPO application to receiving regulatory approval.
According to listing consultants, the bottlenecks are mainly caused by interdepartmental reviews.
Chinese companies with a so-called variable interest structure (VIE), common to firms with foreign investors, must seek approval from their respective major industry regulators under the new application regime.
But the CSRC has no power over other government and party bodies such as the cyberspace authority, which has led to delays and uncertainty for companies, advisers say.
Since the introduction of offshore listing rules, the CSRC has been processing IPO applications “actively and in an orderly manner” and the number of companies applying for IPOs has increased every month, the regulator said.
APPROVAL PROCESS
CSRC approval, called IPO filing completion, is the regulatory clearance a company needs before launching an IPO – a process that ends a decades-long hands-off approach to fundraising overseas.
According to a senior banker at a foreign bank, the approval process delays an offshore placement on average by two to three months, with the time required for all regulatory approvals being at least eight to nine months.
Chinese companies had raised $1.5 billion in offshore IPOs as of May 17, down 21% from last year and well below the $27 billion record set in 2021, according to LSEG.
The CSRC said it will continue to “optimize the oversight mechanism for overseas listing applications” and that “more companies will successfully complete their filings in the near future.”
The lengthy regulatory process comes amid China’s economic slowdown and real estate crisis, which has made both issuers and investors wary of stock offerings and company valuations.
JD (NASDAQ:) Industrials, a VIE structured company whose Hong Kong listing application was filed more than a year ago, is still awaiting approval pending additional submissions, according to a regulatory disclosure.
Its parent company JD.COM withdrew an additional listing of another unit, JD Property, after the last filing deadline on the Hong Kong Stock Exchange, two sources familiar with the matter said.
JD Property did not receive CSRC approval, they said, although it is 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 a Reuters request for comment.
Some IPO hopefuls fear they may have to list at a lower price if demand wanes by the time they get approval, a banker and a top executive of a potential listing candidate said.
Others accepted the slow pace of permitting and did not try to lobby regulators, they added.
“In the past, regulators often quietly supported firms seeking to list abroad. Now the political incentives have completely changed,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics.
“Supporting a foreign listing comes with a lot of downside risk, but not much upside.”