Beijing Stock Exchange could be alternative to SPAC listings by innovative Chinese tech companies, trade group says
- Proposed Beijing Stock Exchange to focus on innovative small and medium-sized enterprises
- Appetite for SPAC deals with Chinese companies low after Beijing’s crackdown on technology firms, sponsors say
A new bourse planned for Beijing could be a potential alternative for up-and-coming Chinese technology firms that might consider going public via special purpose acquisition companies (SPACs), particularly as China places greater scrutiny on overseas listings in the sector, according to an influential trade group and market observers.
“There are many factors that affect the IPO decision-making when companies decide their listing venues and the options to go public,” said Estella Kuo, secretary of the Zhongguancun Listed Companies Association, a trade group representing more than 400 listed and unlisted companies in China, mostly based in Beijing.
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“The Beijing Stock Exchange will give a good choice to them. Companies in Zhongguancun will definitely take advantage of this opportunity [along with SPACs].”
Through the end of August, SPACs raised US$122.1 billion globally, primarily in the United States, according to financial data provider Refinitiv.
And, China Securities Regulatory Commission chairman Yi Huiman warned last week that SPACs and other non-traditional listing models, such as direct listings, are posing disruptive challenges to traditional IPOs and creating issues for regulators.
At the same time, the crackdown this summer on the country’s tech sector has weighed on overseas listings, with Beijing requiring greater scrutiny of listings by companies that hold the personal data of 1 million or more Chinese people.
As a result, the appetite for SPACs to acquire Chinese companies remains low, particularly while tech firms are in the crosshairs for potential regulatory action, according to Peter Kuo, the CEO of PTK Acquisition Corporation, a SPAC that agreed to buy Israel’s Valens Semiconductors in May.
“People are taking a breather on it,” he said.
Marcia Ellis, global chair of the private equity group at law firm Morrison & Foerster, said a sponsor she recently spoke with is not considering Chinese targets right now “because there is too much uncertainty”.
“A lot of that is uncertainty that might be clarified in the next six months,” Ellis said. “After things are clarified on a couple of fronts, on the US and the China sides, I think Chinese targets will again be attractive.”
One big question for the new Beijing bourse – its attractiveness as an alternative listing venue – will be whether it can garner significant liquidity, as the New Third Board has struggled to do in the past.
“Personally, I’m a little bit sceptical about whether the announcement has been coupled with a more comprehensive analysis of what it takes to get a meaningful market up and running,” Kuo said. “When you think about the logistics, the trading infrastructure and the quality of companies, I don’t think the government in the past has thought through a lot of the issues that need to be addressed to get a robust stock market to attract both solid companies and investors.”
Another issue that will need to be addressed is the lengthy timetable it often takes for companies to list in the mainland, according to sponsors.