A few months before, bankers were celebrating their record haul experienced by taking several Chinese companies public in New York as well as Honk Kong; however, they have had a rude awakening. Deals have started to be shelved, and investors are going through huge losses.
The whole global finance has been deeply affected only within a fortnight before which China had first cracked down on its Uber-like Didi deal right after U.S. trading debut. This was closely followed by a State Council statement announcing closer scrutiny of all offshore listings. On July 10, a cyber-security review was suggested for companies that have data on more than One Million users before they have permission to list in foreign countries.
The red flag has been waving for some time now. In particular, with underwriters collected a record US$1.5 billion (S$2.03 billion) as a total fee in the last year. Collections consist of help provided to Chinese firms with IPOs (Initial Public Offerings) offshore, with relations between China and United States being at low ebb. In December, then-President Donal Trump had signed a bill that empowered authorities to delist Chinese companies if they didn’t meet audit inspections. At the same time, Chinese President Xi Jinping stepped up the oversight of tech giants, mainly as they store a huge amount of data.
The actions of both countries have put frenetic deals done in the midst of the COVID-19 pandemic into great peril. They were further affecting the lucrative business of offshore listings that have managed to accumulate around US$6.4 billion in fees since 2014. Now, bankers are expecting the majority of Chinese IPOs coming to American Exchange to suspend or divert their ideas to some other venues. Thus, eating projected revenue for the present year as the fees in Honk Kong are significantly low.
Listing requirements in mainland China and financial hubs are also becoming more stringent, due to which making deals is becoming hard filled with uncertainties. In all this while, what has been affected is the IPO pipeline that used to be quite healthy. The brunt of US and China actions is being born by companies; for instance, LinkDoc Technology (Beijing-based medical data company) had to close its operation for US IPO.
Financial Times reported that the fitness app “Keep” had to decide to no longer move forward with its US public filing. Podcast app “Ximalaya’s” US IPO is also in limbo, according to sources. Numerous more deals could also be in doubt, including Hong Kong delivery firm “Lalamove’s” potential US$1 billion IPO. In all, China’s increased restrictions on the overseas listing are set to affect around 70 other private firms located in Hong Kong and China that were set to go public in New York in the near future, according to data compiled by Bloomberg.