Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis: Chinese tech start-ups pull IPO plans as Beijing tightens scrutiny

Stock MarketsApr 11, 2021 07:46PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. Sign for STAR Market is seen after the listing ceremony of the first batch of companies at Shanghai Stock Exchange in Shanghai 2/2

By Samuel Shen and Scott Murdoch

SHANGHAI/HONG KONG (Reuters) - A growing number of Chinese tech start-ups are cancelling plans to list on Nasdaq-style markets at home with some eyeing Hong Kong share sales instead, as regulators tighten scrutiny of IPO applicants after the halting of Ant Group's $37 billion float.

Over 100 companies have voluntarily withdrawn applications to list on Shanghai's STAR Market and Shenzhen's ChiNext since Ant's termination of its initial public offering (IPO) in November, according to Reuters review of exchange filings.

The unprecedented withdrawals come against the backdrop of sharply intensified grilling of listing prospects by regulators, leading to IPO delays, outright rejection or even penalties, say bankers and company executives.

The scramble to withdraw IPO applications raises questions over the quality of China's IPOs and robustness of due diligence done by their underwriters.

The trend, if it continues, would threaten China's ambition to compete with global listing venues such as Hong Kong and New York at a time when Beijing is also considering establishing a new bourse to attract overseas-listed firms.

China launched STAR nearly two years ago with a U.S.-style registration and disclosure-based IPO regime in a bid to dissuade its tech start-ups from tapping offshore bourses, and to fast-track listings. The reform extended to ChiNext last year.

But Ant's IPO, which was suspended after regulators expressed concerns about some parts of its businesses, shifted the watchdog's attention towards risk control, said a banker with direct knowledge of regulators' thinking.

"Regulators are demanding more stringent due diligence from underwriters," said the banker, who declined to be identified.

Sponsors, or the lead IPO underwriters, are withdrawing some applications for fear of being punished, he said, as "no project is impeccable."

The STAR Market became the world's fourth most popular listing venue in 2020, with IPOs raising $20 billion. Its ranking fell to the 7th in the first quarter, according to Refinitiv data.

"There's a tech bubble in China," said Yiming Feng, partner at Atom Venture Capital. "It's time for a clean-up."

The China Securities Regulatory Commission (CSRC), STAR and ChiNext didn't respond to Reuters request for comment.

PRIVATE FUNDING

DaoCloud, a Shanghai-based cloud computing start-up, had planned a STAR IPO this year, but is now considering a Hong Kong listing instead, deterred by the likelihood of approval delays.

IPO applicants "now face a lot of regulatory uncertainty," said Roby Chen, DaoClould's founder. "So we need a plan B."

For others with no immediate plans for an overseas listing, the priority is to seek fresh private funding.

Several artificial intelligence unicorns, start-ups valued at $1 billion or above, "have come to me with their business plans, and seek financing," said Abraham Zhang, chairman of Shenzhen-based venture capital firm China Europe Capital.

Loss-making tech unicorns that have shelved their listing plans include Yitu Ltd, Unisound AI Technology Co and Shenzhen Royole Technologies Co, according to exchange data.

Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, said many Chinese start-ups now face a bumpy road towards IPOs, with some of them struggling to "demonstrate their potential for sustainable growth."

SICK COMPANIES

CSRC Chairman Yi Huiman last month urged underwriters to tighten scrutiny of IPO candidates, vowing to punish those trying to bring "sick" firms to the market.

Bankers say bourses are now launching on-site inspections, poring over IPO filings and bombarding sponsors with loads of questions - practices that were not common earlier.

In addition, senior executives of a start-up must disclose their personal bank accounts and explain large transactions.

As a result, the average waiting time has blown out from six months to 12, creating a backlog of over 100 companies waiting to list on STAR, said a banker.

The new IPO system lured many companies seeking a swift listing, and now, "regulators are using relentless attention to details and on-site inspections to intimidate them away," said an investment banker who has several IPO deals stuck.

"It defies the purpose of the IPO reform, which is to give the market the power to evaluate companies."

Analysis: Chinese tech start-ups pull IPO plans as Beijing tightens scrutiny
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Kaveh Sun
Kaveh Sun Apr 11, 2021 7:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Too many scam chinese r listed on exchanges. China is doing the right thing to clean some up but due to their inexperience some good companies got trapped.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email