China introduces CDR trial rules to win back Alibaba and Baidu from US bourses

Starting from Thursday, companies listed overseas with a valuation of over RMB 200 billion could start to apply for CDRs.

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China introduces CDR trial rules to win back Alibaba and Baidu from US bourses

Late on Wednesday, China stepped up its efforts in bringing back some of the country’s most valuable overseas-listed tech darlings back home as China Securities Regulatory Commission (CSRC) released nine new regulations concerning CDR, or Chinese Depositary Receipts.

CDR is a financial vehicle to allow for home market secondary listing for the likes of Nasdaq-listed Alibaba and HKEX-listed Tencent, two of the largest internet companies worldwide by market cap.

Starting from Thursday, companies listed overseas with a valuation of over RMB 200 billion (approx. US$ 32 billion) could start to apply for CDRs. CSRC also stated on Wednesday that it will strictly control the size, timing, and pace of CDR issuance.

 

Why the rush

Modeled after the American depositary receipts, CDR serves as a financial instrument that represents a foreign-listed company’s publicly traded securities which could be sold in yuan and on Chinese stock exchanges.

It aims to make the overseas-traded shares of the likes of Alibaba, Baidu, and JD, available to domestic investors, as these companies were not permitted to list in China due to their VIE structures.

Words of China’s CDR trial first got out few months ago during the country’s annual two sessions held in Beijing, China’s counterpart to the US Congress, at which many heads at Chinese tech giants voiced their support, including Xiaomi’s LEI Jun and Baidu’s Robin Li, we reported before.

And since then, there were sporadic news signaling the middle kingdom is quicken its pace in bringing back its “exiled” tech powerhouses, un till last night’s announcement from Beijing that materialized its determination.

China’s quick move probably comes as part of the country’s plan to put itself in a position to battle not only New York for some of its most valuable companies, but also to compete with Hong Kong. In April, HKEX approved the introduction of dual-class shares which was considered the biggest reform to its IPO rules to date in a bid to woo tech giants like Xiaomi and Ant Financial to list in the city.

 

The likes of Alibaba

For foreign-listed tech companies, a dual-listing at home could lift their market valuation and share prices, as domestic investors are more familiar with these companies’ products and businesses, meaning they are more likely to invest in these companies’ vision and future.

Alibaba, Baidu, JD, and NetEase, are rumored to be in the first batch of eight companies to relist in China. Heads of these companies have all expressed their support for the CDR policy.

Apart from listed tech conglomerates, KrASIA has previously reported that Xiaomi is adding an A-share listing to its HK IPO, potentially becoming the first Chinese company to issue CDRs. According to a report by local media Caixin, the smartphone manufacturer is likely to apply for CDRs as soon as Thursday.

Also on Wednesday, CSRC approved the launch of six Chinese mutual funds which will be allowed to become strategic investors in the upcoming secondary listings. The funds look to raise RMB 50 billion (approx.US$7.8 billion) each from retail investors as well as from institutions, potentially injecting hundreds of billions of yuan into the approaching flotations.

 

Read more: Xiaomi to issue CDR and become the first dual-listing Chinese unicorn soon

 

Editor: Ben Jiang