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Chinese listings surge on Wall Street despite tensions

Chinese companies have raced to sell shares on Wall Street this year even as relations between Washington and Beijing plunged to their lowest ebb in decades.

The number of initial public offerings by Chinese businesses on the New York Stock Exchange and Nasdaq have more than doubled since the start of this year, according to Dealogic data. The companies that have listed have raised $2.9bn, a nearly 30 per cent rise compared with the same period last year.

That figure could rise substantially with the listing of Chinese fintech group Lufax this year, according to people familiar with the matter.

The jump in fundraising has come despite simmering tensions between the world’s two biggest economies. Global equity markets fell at the end of last week after Beijing announced the closure of a US consulate in China, prompting concerns over a new cold war.

The implosion of Nasdaq-listed shares in China’s Luckin Coffee has also re-energised a drive in Washington to pass legislation that could force Chinese companies to delist from US exchanges based on their compliance with local auditing standards.

As US scrutiny has increased, New York-listed Chinese tech groups including JD.com and NetEase have raised billions of dollars through so-called homecoming share offerings in Hong Kong. These could eventually serve as the companies’ primary listings if they are pushed out of New York.

But bankers said the fact that 19 Chinese companies have listed on the New York Stock Exchange and Nasdaq in 2020, up from nine in the same period in 2019, reflected how the draw of America’s more developed capital markets could outweigh geopolitics.

US markets “have very large and very deep pools of liquidity”, said Jason Elder, a partner at law firm Mayer Brown, despite the fact that Hong Kong had “made great strides” in recent years with reforms to its listings rules.

Among the advantages US markets still offer, bankers said, were higher trading turnover. That makes it easier to carry out secondary share placements and follow-on stock offerings.

Bankers also highlighted the depth of expertise among Wall Street analysts. Many of the US listings by Chinese companies this year have been by biotech companies such as Genetron Holdings, which specialises in cancer-diagnosis technology. The company raised more than $250m on Nasdaq in June.

Column chart of Funds raised from US IPOs by Chinese companies during the year to date ($bn) showing Chinese listings still flock to Wall Street

“There’s still [Chinese] companies that would enjoy a boost by being in the US just because of the sector coverage by analysts,” said Mr Elder. Biotech is “a classic example”.

One Asia-based investment banker also pointed to the fact that it could take more than three years for the risk posed to New York listings of Chinese companies by US legislation to become a reality.

Bankers have argued that the ease in which big companies had been able to execute quickly secondary offerings in Hong Kong in recent months had burnished Wall’s Street credentials. Chinese companies have little fear of listing in New York because they know they have a credible back-up, some said.

“The fact you can do a secondary listing pretty easily also provides us some encouragement,” said one Wall Street banker. But the US “still has a heck of a lot more liquidity, and access to a lot [bigger] investor base”.

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