Clear way ahead for mainland China companies listing IPOs overseas
- New rules from the China Securities Regulatory Commission aim to bring transparency and end chaotic process that left such offerings mostly unregulated
Transparent rules and regulations are the lifeblood of a healthy capital market. The China Securities Regulatory Commission (CSRC) has now spelled out a clear way forward for mainland companies that want to list their initial public offerings overseas.
That is to be welcomed, especially as the country is reopening after three years of tough pandemic control.
The new rules will kick in at the end of this month. Companies are free to raise capital in an overseas market of their choosing, provided they first register their intention with the CSRC as well as obtaining approval from their own industry regulator.
The new rules will create a transparent system with a national register of IPOs safeguarded by clearly defined rules and disclosures.
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Commendably, regulators will drop an administrative cap on IPO prices and allow companies to price the stock freely. Meanwhile, rules for listing on the main boards of the Shanghai and Shenzhen exchanges have also been eased to lure the fastest-growth companies and aid China’s economic recovery.
Just as importantly, those two key mainland bourses will take over the power of IPO approvals from the securities regulator, as they will be tasked with focusing on determining the truthfulness of information disclosures instead of making judgments of values and growth potentials. This will greatly enhance regulatory efficiency and investor protection.
In other words, the CSRC will act more as an umpire rather than arbiter and approver. The reforms will standardise the hitherto chaotic process that left overseas IPOs mostly unregulated.
A debacle such as the New York listing in 2021 of Didi Chuxing cannot be allowed to happen again. The ride-hailing giant defied warnings by the Cybersecurity Administration of China and went ahead with its US$4.4 billion IPO, only to be forced to delist 11 months later.
The revamped role of the CSRC will also help remove the potential for corruption and patronage. This was underlined in a report by its discipline committee in September that disclosed how five senior officials in the department responsible for approving IPOs had been investigated for corruption within a year of each other.
In recent weeks, after China and the US resolved their decade-long auditing tussle, a handful of under-the-radar companies quietly raised capital in New York. Bankers expect corporate China to continue to find ways to recapitalise, and capital will always find a way despite heightening US-China tensions.
Corporate China needs cash from public listings, as funding from private equity and venture capital has mostly dried up. A robust pipeline in the stock market will also help lift investor confidence. Such developments can only be good for the growth and future of China’s capital market, and its economy.
