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Overseas IPO: New regulations for Chinese tech companies

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According to a report in the Wall Street Journal (WSJ) on the 27th (local time), the China Securities Regulatory Commission (CSRC) will block U.S. IPO of Internet companies that collect large amounts of personal data.

didi chuxing ipo
In June, Didi Chuxing tried to go public in the U.S. amid mixed signals from authorities.

On the other hand, overseas listings of companies with less sensitive information, such as pharmaceutical companies, are not likely to face significant restrictions in the near future.

CSRC officials have met with a number of international companies and investors in recent weeks to explain the new rules.

Moreover, the CSRC has suspended foreign listings of Chinese companies until the new rules are finalized.

Chinese technology companies that have dominated the Chinese market, such as Alibaba, Tencent, and Didi Chuxing, are unlikely to be listed on foreign stock exchanges in the future.

China’s actions will likely lead to significant losses for foreign investors.

As foreign investors look for growth in Chinese markets, they have discounted big profits for companies that are listed on the U.S. markets.

With these expectations in mind, Softbank and other Japanese companies invest heavily in Chinese tech companies.

To list on a foreign stock market (overseas IPO), Chinese companies will need approval from a joint government agency involving each ministry, according to the draft regulations being drafted by the CSRC.

The new rules are expected to take effect within the next few months.

In addition, the new regulations drafted by the CSRC seek to fill the blind spot of so-called variable income entities (VIEs), a complex corporate governance system that Chinese companies use to bypass foreign stock exchanges.

Currently, Chinese private companies can list on the U.S. stock market without CSRC approval through VIEs.

Over the past 20 years, VIEs have played a significant role in the listing of Chinese companies on foreign stock markets. It served as a means of attracting foreign capital and being listed on the U.S. or Hong Kong stock markets.

Through VIEs, which are usually registered in tax havens such as the Cayman Islands, foreign investors can acquire shares of Chinese technology companies.

In contrast, Chinese companies cannot exercise shareholder rights related to decision-making on shares acquired through VIEs.

For MetaNews.

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Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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