Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Exclusive: Nasdaq cracks down on IPOs of small Chinese companies

Stock MarketsSep 29, 2019 02:17PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A woman walks past the Nasdaq MarketSite in New York's Times Square

By Echo Wang and Joshua Franklin

(Reuters) - Nasdaq Inc (O:NDAQ) is cracking down on initial public offerings (IPOs) of small Chinese companies by tightening restrictions and slowing down their approval, according to regulatory filings, corporate executives and investment bankers.

Nasdaq's attempt to limit these stock market flotations comes as a growing number of them end up raising most of the capital in their IPO from Chinese sources, rather than from U.S. investors.

The shares of most small Chinese companies trade thinly following their U.S. listing, because most of them stay in the hands of a few insiders. Their low liquidity makes them unattractive to many large institutional investors, to whom Nasdaq is seeking to cater.

For example, when 111 Inc (O:YI), a Chinese online pharmacy network, raised $100 million in its IPO on Nasdaq last year, shares were mainly sold to connections of the company's executives, 111 CEO Liu Junling told Reuters in an interview.

Digital influencer incubator Ruhnn Holding Ltd (O:RUHN), after-school education provider Puxin Ltd (N:NEW), and pet product manufacturer Dogness International Corp (O:DOGZ) are other examples of Chinese companies that listed on Nasdaq in the last two years with more investors from China snapping up their shares than from the United states, according to sources close to the companies. Ruhnn, Puxin, and Dogness did not respond to requests for comment.

"One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies. The statutory obligation of all U.S. equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for U.S. investors," a Nasdaq spokeswoman said.

The Nasdaq spokeswoman declined to comment specifically on the impact of the changes in the listing rules on the U.S. IPOs of small Chinese companies.

At a time of escalating tensions between the United States and China over trade and technology, Nasdaq's curbs on small Chinese IPOs represent the latest flashpoint in the financial relationship between the world's two largest economies.

U.S.-listed shares of Chinese companies fell sharply on Friday following reports that the White House was considering delisting Chinese companies from U.S. stock exchanges. A U.S. Treasury official said on Saturday that U.S. President Donald Trump's administration was not considering blocking Chinese companies from listing shares on U.S. stock exchanges "at this time".

A source close to Nasdaq said the changes to its listing rules were not the result of discussions with the White House. A White House spokesman declined to comment on Nasdaq's listing rule changes.

In June, U.S. lawmakers introduced a bill, which has yet to be adopted, that would force Chinese companies listed on American stock exchanges to submit to regulatory oversight, including providing access to audits, or face delisting.

Nasdaq first proposed changing the listing rules in October 2018, and the changes took effect last month.

"Nasdaq's concern about low liquidity and high volatility in the marketplace brought about by such Chinese IPOs has become very obvious since mid-2018," said Ralph De Martino, chair of U.S. law firm Schiff Hardin LLP's Asia practice, which advises Chinese companies on their IPOs.

STRICTER RULES

Nasdaq's new listing rules have raised the average trading volume requirements for a stock, and call for at least 50% of a company's shareholders to invest a minimum of $2,500 each in an IPO.

Nasdaq also said in June that it may delay the U.S. listing of a company that does not demonstrate a strong enough nexus to the U.S. capital markets, including having no shareholders, operations, management or board members with links to the United States.

Small Chinese firms pursue these IPOs because they allow their founders and backers to cash out, rewarding them with U.S. dollars they cannot easily access because of China's capital controls. The companies also use their Nasdaq-listed status to convince lenders in China to fund them and often get subsidies from Chinese local authorities for becoming publicly traded.

Unlike Nasdaq, the Chinese stock market has strict listing criteria that prevent some loss-making companies from going public. The geographically adjacent Hong Kong stock exchange is also viewed by IPO hopefuls as more strict compared to Nasdaq.

Chinese companies have raised over 70 billion in the U.S. stock market since 2000, according to Refinitiv data. While the biggest ones, such as e-commerce giants Alibaba Group Holding Ltd (N:BABA), Pingduoduo Inc (O:PDD) and JD.com Inc (O:JD), have attracted major U.S. stock market investors, many small ones have proved unpopular.

This is largely due to their poor track record. Shares of Chinese IPOs that raised $200 million or less have traded down 38% on average since their IPO through July 31 in the last 18 months, compared to a rise of 13.9% for U.S. companies of the same size, according to Dealogic data.

Some 19 Chinese companies went public on the Nasdaq in 2018, up from 8 in 2017, based on submissions by investment banks underwriting them to Dealogic.

IPOS HELD UP

Following the listing rule changes, small Chinese IPOs have experienced longer waiting times and scrutiny from Nasdaq before they are allowed to proceed with their IPOs, according to corporate and investment banking sources.

For example, Xuezhu Wang, CEO of Happiness Biotech Group Ltd (O:HAPP), a Chinese company that manufactures and sells nutraceuticals, told Reuters he promised Nasdaq to secure at least 30% of the IPO proceeds from U.S. investors, in order to be allowed to list.

As most of the small Chinese companies pursuing U.S. IPOs have no U.S. business presence or brand recognition, hiring U.S. citizens as board members is now being adopted as a tactic to get listings approved, Chinese executives and investment bankers say.

China Xiangtai Food Co (O:PLIN), a pork processing company based in Chongqing City in southwest China, had to add two U.S. citizens to its board of directors to be allowed by Nasdaq to complete its IPO in August 2019, according to two people familiar with the matter.

Xiangtai did not respond to a request for comments.

The New York Stock Exchange, the other major U.S. stock exchange, operated by Intercontinental Exchange Inc (N:ICE), is looking closely at Chinese listings, according to a source familiar with the matter. However, it has yet to introduce rule changes similar to Nasdaq.

"The New York Stock Exchange has a longstanding commitment to good governance, rigorously adhering to both the letter and spirit of our listing standards," a New York Stock Exchange spokesman said.

Exclusive: Nasdaq cracks down on IPOs of small Chinese companies
 

Related Articles

Bitcoin falls 8.4% to $49,228.82
Bitcoin falls 8.4% to $49,228.82 By Reuters - Dec 04, 2021

(Reuters) - Bitcoin dropped 8.4% to $49,228.82 at 20:01 GMT on Saturday, losing $4,514.87 from its previous close. Bitcoin, the world's biggest and best-known cryptocurrency, is...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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 (4)
Ng Zen ng
Ng Zen ng Sep 29, 2019 6:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good for alll the investors
Buzzy Jefferson
Buzzy Jefferson Sep 29, 2019 6:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good news for American investors.
TA XVCI
TA XVCI Sep 29, 2019 4:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Is a deal close to happen? Very unlikely if they want to delist China companies.
Raoul Duke
Raoul Duke Sep 29, 2019 4:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No deal until erection. Chinese are trying to make Trump look bad so he does not get re-erected. They fear him,not the others. They will let their own people suffer if they think they can get a different US president.
kwang ho cho
kwang ho cho Sep 29, 2019 4:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
There will be only one superpower in the World ..any challenger shall be pressed to disarm by possible means..trade, financing are strong weapon before military power.Chinese leader Xi was too arrogant and proud to remember Deung Xio ping's advice.In the World and Asia tremendous power game is on the way and China has very limited sources to fight..They know clearly most of Chinese are using pirate version of software developed by US companies with zero pay.They should pay the cost or we can seize the investment of Chinese Gvmnt for US treasury. Supposing yuan go down to 12 to dollar .. China will be bankrupt.very simple
Raoul Duke
Raoul Duke Sep 29, 2019 4:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
True , but not simple in application. Nations ,all nations , driven by desire for control,money and power , behave no different than spoiled children or spiritually sick adults. This is true throughout history. Power is gained until greed ultimately removes it. This is a historical fact (Alexander the Great , Ghengis Khan, Ancient Rome, Brits) . The U.S. will eventually prove the same rule, not tomorrow,but eventually.
 
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