July 13, 2021

China’s US IPO queue to shrink amid regulatory crackdown

By ellen

DUBAI (BLOOMBERG) – China’s crackdown on United States initial public offerings (IPOs) by its companies has put its burgeoning pipeline of potential listings at risk.

A medical data company, a fitness app and an e-commerce platform have, in the past week, postponed plans to go public in the US, as Beijing cracks down on tech and data-heavy firms listing stateside. There are about 70 other private firms based in Hong Kong and China set to go public in New York, according to data compiled by Bloomberg.

The broadened scrutiny by Beijing on US offerings by its firms is going to close off a deep and liquid market for many of China’s smaller growth companies who would otherwise be unlikely to be able to meet the bar for listing back home or in Hong Kong.

Big companies, too, have been affected: TikTok owner ByteDance is working to ensure it complies with data security requirements before going public after meetings with Chinese government officials over the issue earlier this year, people familiar with the matter said.

The company has not “shelved” its IPO plans and had not decided on specific timing, two of the people said, asking not to be identified discussing private information. The Wall Street Journal earlier reported that ByteDance had put its intentions to go public on hold indefinitely.

“Recent developments regarding overseas listings or related data security risks have put a downside risk to the Chinese tech sector,” said Mr Mathieu Racheter, the head of equity strategy at Julius Baer Group in Zurich.

So far this year, 37 Chinese companies have listed in the US, raising about US$13 billion (S$17.6 billion) in all, according to Bloomberg data. That is the highest for such a year-to-date period on record and almost exceeds the full-year tally for 2020.

Last week, medical data firm LinkDoc Technology pulled a New York float that could have raised as much as US$211 million, with people familiar with the deal citing market volatility. That happened just after Beijing said last Tuesday (July 6) that rules for overseas listings would be revised and publicly traded firms held accountable for keeping their data secure.

These restrictions came as the authorities ordered virtual stores to remove apps from recently listed ride-hailing giant Didi Global days after its US listing and restrained the ability of tech firms to raise capital through variable interest entity structures, which have allowed Chinese companies in sensitive industries like Didi and Alibaba Group Holding bypass foreign ownership restrictions.

LinkDoc is not the only deal put on hold, according to media reports. SoftBank Group-backed Chinese fitness app Keep opted not to go ahead with its US filing, according to the Financial Times, and e-commerce start-up Meicai also put its float on hold, the South China Morning Post reported last Friday.

Apart from ByteDance, another closely watched US listing hopeful is Lalamove, known as Huolala on the mainland. The Hong Kong-based delivery company backed by Tiger Global had filed confidentially for a US IPO, Bloomberg reported on June 24.

Smaller deals on the cards for a US listing include an around US$500 million float by Chinese convenience store chain start-up Bianlifeng, and a between US$300 million and US$400 million IPO by online brokerage Webull.

Beijing’s spotlight on the tech sector is already taking a toll even on Hong Kong-traded firms. TikTok rival Kuaishou Technology, which pulled off the world’s biggest share sale of this year, slumped 17 per cent last week, while New York-traded Baidu is down 30 per cent since its secondary listing in the offshore Chinese city in March.

Any “listings in the pipeline that were planning to head to the US will have to rethink strategy and instead focus on a primary listing in Hong Kong”, Mr Ramiz Chelat, a portfolio manager at Vontobel Asset Management, wrote in a note. “This is all part of the ‘coming home’ strategy.”