China’s crackdown puts at least 70 IPOs on billions of dollars in ice pay Bank News

Bankers held a record for making Chinese companies public in New York and Hong Kong and a few months later, they had a rough awakening. They are leaving deals and investors are suffering huge losses.

A chill settled around the global financial fortnight in the first days of China’s U.S. commercial premiere of its Uber-like Didi Global Inc. confronted the company, and then the Council of State announced a more in-depth study of the sea lists. On Saturday, a cybersecurity review was proposed before companies with data on more than a million users sought to be listed in foreign countries.

Warning signs were flashing for a while. As contractors hit a record $ 1.5 billion share last year in helping Chinese companies that had an initial public offering offshore, relations between China and the U.S. have declined. In December, Donald Trump signed a bill to eliminate Chinese companies that do not comply with auditing regulations. At the same time, President Xi Jinping stepped up oversight of large technology companies to ensure the treasure trove of data they control to some extent.

The moves jeopardize the frantic treatment seen in the pandemic and the business profits from offshore listings in 2014 came in at $ 6.4 trillion since Alibaba Group Holding Ltd. began trading in New York. Morgan Stanley, Goldman Sachs Group Inc. and China International Capital Corp. surpassed the league tables in that span, with nearly 40 percent of the fees coming from U.S. agreements.

Bankers now say they expect to suspend most of the Chinese IPOs aimed at U.S. exchanges or divert them to other places, eating at the expected revenue for the year with significantly lower Hong Kong shares. The requirements for listing in the financial center and in mainland China are also more stringent, which is why they are not sure of making deals.

“There are some uncertainties that could take a month or two to work out its trajectory,” David Chin, head of investment banks at Asia Pacific in UBS Group AG, said last week about changing China’s rules. “Eventually, China will find a solution because the US has been very helpful to Chinese Internet companies, their development and subsequent financing.”

Meanwhile, what was once a healthy IPO pipeline is weakening. An immediate victim of LinkDoc Technology Ltd. was a Beijing-based medical data company that suspended preparations for the U.S. IPO on Thursday.

The fitness app has also not chosen to continue with the planned U.S. public archive, the Financial Times reported. The podcast app is also in limbo for the Ximalaya U.S. IPO, according to people who know the subject. Other agreements that could be questioned include the Hong Kong-based delivery company Lalamove, which has a potential IPO of $ 1 billion.

Overall, China’s crackdown on lists abroad threatens another 70 private companies located in Hong Kong and China that will be published in New York, according to data collected by Bloomberg.

The ratings of Chinese technology companies, which were already falling ahead of the latest attack, now seem to require investors to demand sharper discounts to buy shares, a banker said, and was not asked to discuss internal business. This month, the Nasdaq Golden Dragon index – which follows some of the largest Chinese companies listed in the U.S. – has thrown a $ 145 trillion value.

At the heart of the latest crackdown is the extent to which regulators will go to check on foreign investment in sensitive industries, especially those that control large amounts of data. Over the past two decades, Chinese technology giants have sidelined restrictions by using the variable interest entity model to attract foreign capital and offshore IPOs.

The China Securities Regulatory Commission is making efforts to revise foreign listing rules, requiring VIE companies that do business in China but are registered in places like the Cayman Islands before the shares could be required to be sold abroad, Bloomberg reported. The Chinese Cyberspace Administration said on Saturday that the proposed revisions would address the risks of foreign governments “harming, controlling and maliciously exploiting” the data.

Minimum fees

Hong Kong is very good at taking advantage of geopolitical and regulatory frictions, even if doing business in the financial center is also complicated by regulatory push. If Chinese unicorn IPOs stop, the Hong Kong exchange should be boosted by secondary listings and the conversion of American deposit receipts, according to Sharnie Wong Bloomberg Intelligence analysis.

“Some Chinese companies operating in sensitive sectors will consider listing in Hong Kong instead of in the US,” said Kenneth Ho, CEO of Capital Markets at Haitong International. “Currently the HK IPO pipeline is very intense.”

Redirects will reduce the fees that banks can charge after a decade. Chinese companies raised about $ 76 billion through the first sales of shares in the U.S.

Banks typically charge between 1.5% and 2% for Hong Kong’s $ 1 billion bid, ranging from 3% to 5% in the U.S., as rates vary by sector and contractor. That increases by about two percentage points or more in deals of less than $ 500 million, bankers familiar with the matter said.

In mainland China, the fees for listing on Shanghai’s STAR heavy technology board are comparable to those in the US, but sponsors must invest between 2% and 5% of the shares issued by their customers, an unusual arrangement that could limit interest. due to the need for a ground capital base in major agreements.

A tighter regulatory regime is behind China’s opening of its financial market to allow foreign banks and asset managers to form wholly-owned companies. Powers like Goldman Sachs have been expanding their workforce in an attempt to double or triple the workforce in mainland China, earning billions in the world’s second-largest economy.

China’s Nasdaq-like STAR market has made it easier for tech companies to help at home, even with emphasis on outstanding technology and innovation-focused companies.

China’s dependence on foreign capital has been reduced to feed its businesses less than a decade ago, said Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics. “Chinese companies get big capital without getting their capital in bulk,” he says.

However, UBS’s Chin said it is doubtful that many Chinese companies can meet the requirements of this year’s list, as they have become more stringent this year.

“Eventually, they will have to list elsewhere,” he said. “We are very accustomed to the types and uncertainties of regulatory development, and ultimately commercial logic will prevail and funding and IPOs will continue.”