After all the condemnation of Washington's actions against Chinese companies and threats of a response, it seems Beijing has decided to take another route. Following a massive antitrust campaign in its tech sector, regulators screwed the caps on fundraisings earlier this week and thus wiped out any near-term Chinese initial public offerings.
The effect was immediate. On Friday, the scheduled IPO of Alibaba Health-backed health tech LinkDoc Technology Ltd. was canceled. The deal was expected to be worth up to $211 million. As previously mentioned, at this point, having among shareholders Alibaba Group (NYSE: BABA; HKEX: 9988) is no longer a plus – China's tech titan has been suffering significantly from the regulatory crackdown and is being forced to divest some of its holdings.
And it's not just LinkDoc: a slew of Chinese IPOs have been canceled in the United States over the past few weeks. This included China's top fitness app Keep, which last week pulled its plan for a New York listing. As reported by the Financial Times, the Tencent- and SoftBank-backed platform that anticipated to raise up to $500 million is no longer doing the roadshow.
Further, Ximalaya Inc., China's largest podcast platform also backed by Tencent Holdings (OTC: TCEHY; HKEX: 0700), now sees Hong Kong as the preferred IPO destination. The company filed for a listing on the New York Stock Exchange in early May but has put a stop on the process. The Financial Times quoted a source saying: "After communication with the relevant regulators, Ximalaya understands that a Hong Kong listing would be regarded as a preferred outcome."
Earlier, the digital solutions spin-off of AMTD Group AMTD Digital prepared to go public in New York in a deal worth about $130 million and was removed from the calendar on undisclosed reasons. Atour Lifestyle, a Trip.com-backed hotel chain operator in China, has also managed to set the terms for its $300 million public offering which did not go through.
A slew of other Chinese companies that have filed with the U.S. SEC before the watchdog cracked its whip will also have to reconsider – though, as the South China Morning Post said earlier, the new fundraising rules, which are centered on data security, may slow the IPOs rather than end them completely.
"It's fair to say that the IPO window has closed for Chinese IPOs, at least for now," Matt Kennedy, senior IPO market strategist at Renaissance Capital, told CapitalWatch.
Citing the case of LinkDoc, Kennedy noted that Daojia Ltd., an Alibaba-backed home services platform that filed for a listing last week, is likely to also postpone its plan.
"China's new regulatory oversight throws all that into question. Even if they got the green light from back home, pitching US investors is a very tough sell right now," Kennedy said in an email.
He continued, "That said, in the past, we've seen some Chinese IPOs launch the roadshow disclosing that 100% of the deal was covered by insiders or anchor investors. So, we could see a few more attempt listings. But for the most part, in order for Chinese IPOs to start up again here, U.S. investors will need much more clarity from Beijing on the regulatory side, as well as improved performance from recent U.S. IPOs."
The last Chinese IPO in New York was the fiasco by ride-hailing giant Didi Global (NYSE: DIDI). The largest Chinese listing since 2014, Didi raised $4.4 billion at $14 per share on July 2 and tumbled as low as $11 apiece in the following days on the sell-off that ensued after its ban from app stores. It is now facing lawsuits in the U.S., its stock level at $12.03 as of Friday. In a recent report, The Wall Street Journal called "a disconnect" what Didi was telling U.S. investors prior to the IPO and what was happening on the home front with the regulators.
Two other recently listed Chinese companies, HR platform Kanzhun (Nasdaq: BZ) and freight services provider Full Truck Alliance (NYSE: YMM) saw their stocks drop on similar restrictions of their apps; by Friday, they rebounded slightly. It seems as if Beijing is targeting its U.S.-listed techs one by one.
Thus, while the years 2019 and 2020 were marked by the opening up of China's financial markets and luring its tech companies back home with rewards, this year, it has turned to tough control measures.
Meanwhile, Washington continues its campaign against Chinese stocks on the grounds of reducing risks for U.S. investors. The Holding Foreign Companies Accountable Act initiated and passed under the former president is no longer enough for some parties; namely, for Republican Senator John Kennedy. In June, the Senate passed his Accelerating Holding Foreign Companies Accountable Act, which would shorten the time for foreign companies to comply with PCAOB auditing to two years instead of three.
Those quick to act in the early months of Biden's presidency were lucky. The first half of 2021 saw more Chinese listings in New York than in the entire 2020: the total capital raise exceeded about $12.5 billion in January through June. Now, it will take a significant improvement in Sino-American relations to turn matters for the better. And it may take much longer than the breakup.