Chinese companies put U.S. listing plans on ice as tensions mount

Luckin Coffee

10/06/2020 01:32

* Chinese firms dither over U.S. listing plans
    * Some will pivot to the Hong Kong exchange
    * U.S.-listed Chinese firms highlight risk from tight
regulations

    By Engen Tham and Scott Murdoch
    SHANGHAI/HONGKONG, June 10 (Reuters) - Chinese companies are
putting off plans for U.S. listings as tensions between the
world's top two economies rise, lawyers, bankers, accountants
and regulators involved in what has been a major capital-raising
route told Reuters.   
    The drop in interest, especially from those in the early
stages of planning, is the result of a proposed U.S. legislation
that would make it harder for some Chinese firms to debut in
America and mounting scrutiny following an accounting scandal at
Chinese Starbucks rival Luckin Coffee  LK.O .  urn:newsml:reuters.com:*:nL1N2DI05I
    "We have seen clients putting their U.S. IPO plans on hold
for now," said Stephen Chan, a partner at law firm Dechert LLP
in Hong Kong. "The underlying reason for the slowdown is the
relationship between the U.S. and China," he added. 
    "If tensions between the two nations remain, we would expect
the slowdown to continue," Chan said.
    Chinese groups have raised $1.67 billion via initial public
offerings in New York this year and are looking to raise about
half billion more on U.S. exchanges, Dealogic data shows.
    In 2019, they raised $3.5 billion.
    Sino-U.S. relations have nosedived in recent months with the
countries, already at odds over trade, now butting heads over
the COVID-19 pandemic and China's proposed national security law
for Hong Kong.  urn:newsml:reuters.com:*:nL4N2DB0H6
    Enquiries about U.S. listings have halved this year at one
of the big four accounting firms in China versus 2019 levels, a
senior auditor from the firm said.
    Many companies that reported plans for U.S. listings to
China's securities regulator, marking an early stage in the
process, are now targeting exchanges nearer to home, said a
person close to the regulator.
    The China Securities Regulatory Commission did not respond
to requests for comment, while the U.S. Securities and Exchange
Commission declined to comment.
    Listings take at the minimum several months to arrange,
involving appointing advisers, preparing a prospectus and
obtaining regulatory approvals. The further along the path a
company is, the less likely it is to change plans.
        
    'INVESTOR UNCERTAINTY'
    Chinese firms accounted for about a third, or some $279
billion, of funds raised globally via IPOs in the past five
years. About half of that was overseas, mostly through New York
and Hong Kong floats.
    There are more than 550 Chinese firms listed on U.S. stock
exchanges. Chinese firms often choose New York for floats given
its prestige and international investor base, even as Beijing
seeks to encourage them to list at home to share gains among
local investors and limit foreign oversight.
    Chinese authorities have long resisted audit papers leaving
China, making it hard for U.S. auditing regulators to check the
quality of audits of Chinese companies. 
    But a bill passed by the U.S. Senate which, if signed by
President Donald Trump, would require U.S.-listed foreign
companies to disclose levels of government control. It would
also require that Chinese companies comply with U.S. oversight
of their audits or face being delisted.  urn:newsml:reuters.com:*:nL1N2D21RW
    "For U.S. investors, it will mean fewer listings and it will
be harder to capture the benefits of growth in China," said John
Ott, partner with Bain & Company and a leader with its Greater
China financial services practice.
    U.S.-listed Chinese firms have begun disclosing the risk of
an "adverse impact" on their shares due to tighter regulations.
    Kingsoft Cloud Holdings Ltd  KC.O , the first Chinese firm
to brave New York since Luckin's scandal, warned efforts to
increase U.S. regulatory access to audit information "could
cause investor uncertainty for affected issuers, including us".
    Netease  NTES.O  and JD.com  JD.O  also warned of similar
risks in their recent filings with the Hong Kong stock exchange
for secondary listings in the city.

 (Reporting by Scott Murdoch in Hong Kong, Engen Tham in
Shanghai, Zoey Zhang in Beijing, Kane Wu in Hong Kong and Echo
Wang, Joshua Franklin in New York; Editing by Jennifer Hughes
and Himani Sarkar)
 ((engen.tham@thomsonreuters.com;))