Western banks are ready for an additional study of China’s offshore listings by Reuters

By Scott Murdoch, Kane Wu and Selena Li

HONG KONG (Reuters) – Global investment banks will not reduce their appetite to earn jobs on the list of foreign companies in China, despite increased controls and increased procedures in new regulatory changes, multiple sources said this week.

The China Securities Regulatory Commission (CSRC) last week proposed rules on foreign listings, including a requirement for banks that manage an offshore listing of a Chinese company to register with the regulator.

Foreign banks will also be required to submit annual reports by Jan. 31, which will detail the offshore lists of Chinese companies that worked during the year.

It is unclear how hard the registration process will be or what will be included in the reports, but sources said the requirement is unprecedented and unique, including several investment bankers and lawyers working on foreign listings.

Looking ahead, Western banks will have to balance their desire for the millions of dollars in fees they earn by helping Chinese companies to be listed on offshore exchanges at the cost of more rigorous oversight.

“They want to hold international banks accountable as an A-list,” said one source, a capital market banker with a European investment bank in Hong Kong, referring to initial public offerings. ) About Chinese exchanges.

“I don’t think it’s great, but it’s not surprising either. It’s a move to increase their transparency and see what’s happening in foreign agreements that they didn’t have before.”

The banker refused to register because of his sensitivity to the subject.

Public offerings by Chinese companies in the United States generated revenue of $ 1.6 trillion between 2016 and 2020, according to Refinitiv data. This year, the list generated $ 486 million in fees.

However, all of this was achieved in the first half of 2021 and there has been no new offshore list since June, when regulators announced plans to introduce new rules such as anti-competitive behavior and data privacy breaches.

Plans to tighten control over the sales of foreign shares by mainland companies could ease the regulatory uncertainty that has plagued the financial markets this year and halted the listings, bankers and analysts have said.

PROPER CONTROL

Bankers in Hong Kong and New York do most of the work that Chinese companies do on offshore listings and are not required to register with or submit annual reports to regulators in those jurisdictions.

In addition, capital market subscribers typically oversee securities regulators in the markets in which they operate.

Asking for seafarers to register with the CSRC has been an “unprecedented” move, as Chinese authorities have not used “out-of-territory jurisdiction,” said a Shanghai-based partner at a Chinese law firm.

The purpose of tighter regulatory control is to settle accounts, according to bank and legal sources, in the event of any failure or breach detected by a company after the listing process.

“This means that Chinese regulators are looking more closely at the coverage and business of international financiers,” said Frank Bik, a Hong Kong partner at Ashurst LLP, which focuses on international capital markets.

“Concerns have been raised by several international banks over this unprecedented request for approval of the mandate.”

Under the proposed rules, the CSRC will report any abuse to the offshore banking regulatory authority and the contractor may be barred from submitting new lists for up to three months or one year.

However, some bankers do not seem to be bothered by the proposed changes.

“If they have to hand it over to us, we’ll present it. It’s not a big deal for us,” said a Hong Kong-based chief investment banker at a Wall Street bank, who did not identify himself as allowed to speak. the media.