Analysis: China regulatory easing hopes brighten outlook for offshore equity fundraising

Black Sesame International Holding

21/02/2025 04:57

* 
      iQIYI, Black Sesame raised $500 million via equity deals
this
week
    

        * 
      Revival comes after rise of DeepSeek, signs of regulatory
easing
    

        * 
      China offshore equity deals up more than 6 times in
January
    

        * 
      Dollar investments in startups clouded by regulatory
scrutiny   
 
    

  
    By Kane Wu and Scott Murdoch
       HONG KONG/SYDNEY, Feb 21 (Reuters) - Chinese companies,
mainly those in the tech sector, are accelerating plans to raise
funds offshore, tapping into a rebound in investor sentiment
fueled by hopes of Beijing's support for private firms and the
popularity of DeepSeek, bankers said.
    In a sign of the pickup in offshore equity sale momentum,
two tech companies raised $500 million in total this week alone,
and bankers and lawyers said a growing list of firms is
preparing to launch offshore equity sales in the coming months.
    A pickup will reverse the last few years' sluggish offshore
fundraising activity induced by faltering economic growth and a
regulatory crackdown on private enterprises, and will give the
Chinese companies much-needed access to capital for growth.
    Chinese video streaming platform iQIYI  IQ.O  on Thursday
raised $350 million in an upsized five-year convertible bond, a
day after Hong Kong-listed auto chip maker Black Sesame
 2533.HK  raised $160 million via private placement of shares. 
    Those two deals came just a couple of days after a meeting
between President Xi Jinping and tech business leaders including
Alibaba  9988.HK  founder Jack Ma, seen as a sign that Beijing
is softening its approach to its internet giants.
    Xi's meeting with the business leaders and the meteoric rise
of AI startup DeepSeek could help China tech companies regain
traction in international capital markets, said Li He, a partner
at law firm Davis Polk, who advises on IPOs. 
    "We're already seeing a solid pipeline of IPO candidates,
particularly in tech, healthcare, and consumer sectors," he
said.
    Besides secondary market deals, IPOs by Chinese companies,
particularly in Hong Kong, are also expected to pick up pace in
the coming years - 29 new listing applications were filed in
Hong Kong in January versus 15 in the same period last year.
    Offshore equity capital markets deals involving Chinese
companies in general totalled $3.3 billion so far this year,
more than six times the amount in the same period last year,
Dealogic data showed.
    The jump comes on the back of a market rally, with the main
Hong Kong index  .HSI  rising 12.55% this year.
        "On the back of the rally, we expect to see more capital
markets fundraising activities in the coming months, as well as
acceleration of IPO execution in 2025," said UBS Asia vice-chair
of global banking Mandy Zhu.
    
    INVESTOR INTEREST 
    Offshore Chinese listing hopefuls include battery giant CATL
 300750.SZ , which this month filed for a Hong Kong listing that
could raise at least $5 billion, frozen food company Anjoy Foods
 603345.SS  and online health services firm WeDoctor.
    "Global investor interest in China tech is getting stronger.
Valuations have been very attractive compared to other markets,"
said Ho-yin Lee, head of Asia technology and communications at
Citigroup.
    Underscoring the investor interest, iQIYI on Thursday bumped
up its convertible bond offering to $350 million from $300
million after receiving interest from over 50 institutions,
according to bankers involved in the offering.
    Besides the public market activity, the rise of DeepSeek has
also propelled Chinese venture capital firms to scout for
investments in AI-enabled applications, investors and advisers
said.
    A number of Chinese funds and tech firms have in recent
weeks reached out to DeepSeek, whose AI breakthrough has been
described as a "Sputnik moment" for the country, said three tech
investors familiar with the matter and media reports.
        DeepSeek, whose founder Liang Wenfeng was among those
who met Xi on Monday, however has not decided on any fundraising
plan, said the three sources, declining to be named as they were
not authorised to speak to the media.
    DeepSeek did not respond to Reuters request for comment.
        "In the next two years, AI-enabled applications and
robotics will be a big focus for venture investors, who are
inspired by the success of DeepSeek," said Ming Jin, managing
partner at advisory firm Cygnus Equity.
    Dollar venture funds are, however, unlikely to return soon
due to heightened Sino-U.S. tensions and increased regulatory
scrutiny of private investments in companies by both countries,
analysts said.
    "U.S. institutional money investors are under federal,
state-level and unofficial pressure to avoid allocating capital
to public and private Chinese assets," Gavekal Dragonomics said
in a report published on Tuesday.
    "While a few high-profile liquidity events could change some
minds, the direction of travel is unlikely to change for the
foreseeable future."    

 (Reporting by Kane Wu and Selena Li in Hong Kong and Scott
Murdoch in Sydney; additional reporting by Li Gu in Shanghai;
Editing by Sumeet Chatterjee and Stephen Coates)
 ((kane.wu@thomsonreuters.com; +85228436590; Reuters Messaging:
kane.wu.thomsonreuters.com@reuters.net))