China’s new rules for offshore listings spark concern about lengthy approval process: Investment bankers

SYDNEY/HONG KONG: New rules laying out how Chinese companies can list outside mainland China will often mean getting a nod from several domestic government agencies, potentially making for a lengthy approval process, investment bankers say.

On one hand, the rules provide clarity after a regulatory crackdown by Beijing since mid-2021 that has slowed US listings by Chinese firms to a trickle. But where once - before the crackdown - there was very little in the way of regulatory requirements, there are now more hoops for companies to jump through. Those hoops, combined with US-Sino tensions over a multitude of issues from suspected spy balloons to trade friction, means a rush of Chinese firms seeking initial public offerings in New York is unlikely, Reuters reported.

“It’s not exciting news because now you need to go through some additional, complicated procedures,” said Guo Yi, chief operating officer at Univest Securities, a boutique investment bank that helps Chinese firms list in New York.

The long-awaited finalised rules, which come into effect from March 31, stipulate that firms wanting to list in markets like the United States or Hong Kong will need to make a filing with the China Securities Regulatory Commission (CSRC) as well as gain approval from other relevant regulators. “Previously, you only needed to worry about setting up an offshore structure for listing. Now, you need to report everything,” said Guo.

Under the new rules, a host of government authorities would become involved in approving applicants looking to raise capital via the popular VIE route, said Winston Ma, an adjunct professor at NYU Law School.

So-called variable interest entity (VIE) structures are common among overseas-listed Chinese technology companies such as Alibaba Group Holding Ltd (9988.HK) and JD.com Inc (9618.HK) as they enable companies to skirt Chinese restrictions on foreign investment in certain sectors.

Other agencies that could get involved in the VIE approval process include the National Development and Reform Commission, which supervises foreign ownership in Chinese companies, the Cyberspace Administration of China (CAC) and industry-specific regulators, said Ma.

The involvement of more regulators beyond the CSRC could also lead to more uncertainty around approval as some agencies could have different priorities such as national security or data protection, bankers said.

New York for decades had been a lucrative listing venue for Chinese companies attracted to its deep liquidity and the prestige of a share sale in the world’s largest economy.

That all but ground to a standstill after mid-2021 when ride-hailing company Didi Global pressed on with an IPO despite being urged by Chinese authorities to put the deal on hold, prompting a regulatory backlash and Didi to delist from the US market. Last year, US listings of Chinese firms were worth less than $230 million, according to Refinitiv data, a massive drop from $12.9 billion in 2021.