Chinese companies are slowly coming back to the US for initial public offerings after a yearlong dry spell, but geopolitical tensions, underperforming market debuts and regulatory uncertainty cast doubts over how long America will remain their preferred overseas destination.
Seventeen Chinese companies raising a total of USD 405 million made their debut on US exchanges this year, according to data through October 4 from IPO research firm Renaissance Capital. That is already close to surpassing last year’s 14 IPOs, which raised a total of USD 468 million, though nowhere near the 34 market debuts and USD 12.6 billion raised in 2021.
“I’m not sure that we will see a resurgence of Chinese IPOs [in the US] anywhere near what we saw in 2021 anytime soon,” said Kyle Stanford, an analyst at market research company PitchBook.
In addition to global economic headwinds that slowed overall IPO activity, regulatory hurdles from both China and the US “have really dampened the interest” among Chinese companies looking to list stateside, Stanford said.
The Holding Foreign Companies Accountable Act passed in 2020 put many US-listed Chinese companies at risk of delisting if their auditors failed to comply with American accounting standards. The Securities and Exchange Commission has identified 174 US-listed Chinese companies whose auditors required inspection.
Meanwhile, Beijing’s crackdown on big Chinese tech companies and tighter cybersecurity and data controls led ride-hailing giant DiDi to delist less than a year after scoring one of largest debuts by a Chinese company in New York. Chinese regulators have since rolled out a new rule that requires all companies with more than 1 million users to go through a cybersecurity review before they can list overseas.
In an added hurdle, China published a new set of rules in February that requires all companies seeking overseas listing to obtain permission from the China Securities Regulatory Commission (CSRC).
“What the Chinese government was trying to do through those new rules is basically … raising the bar, meaning that if you are a Chinese company wanting to [have an] IPO in the US, you first have to pass the test from the Chinese side,” said Kaidi Gao, PitchBook’s lead Asia analyst.
“Not only is that kind of a high bar, but it could also mean that companies need to prepare completely different sets of materials, or go in a different direction for what the US or Hong Kong Stock Exchanges are actually looking for, which could add to additional work or hurdles for Chinese companies [that] are thinking about overseas listings,” said Gao.
Rising political tensions have only added to the uncertainties, leading many Chinese companies to take a “wait and see” approach, especially bigger startups with more hopes for more sizable IPOs, analysts said.
Then there is the question of whether American investors are still as interested in Chinese listings as they were during the Alibaba-era, given that the performance of Chinese US IPOs in recent years has been far below average.
The group of Chinese companies that went public in the US between 2018 and 2022 averaged a negative 65% return from offer, compared with minus 23% for all IPOs over that period and minus 16% for non-Chinese issuers, according to Renaissance Capital.
Of the 17 Chinese issuers that have gone public in the US this year, only one has raised more than USD 50 million: lidar developer Hesai. While the year’s larger initial offerings in the US have generally been trading well, Hesai is down more than 50% from its offering price.
As of October 4, the 17 Chinese IPOs averaged a negative 11% return from offer, according to Renaissance Capital.
“The average is somewhat skewed by a few high-flying names,” said Avery Spear, senior data analyst at Renaissance Capital, adding that just under one quarter of the group is trading above issue.
“If the returns are as poor as they are, I think that will weigh on issuance from China, going forward,” Spear said.
Smaller IPOs also “just typically do not do as well as larger issuers,” Spear said, adding that disappointing returns have scared off potentially bigger offerings. “The larger issuers are staying out because the returns aren’t good. So you have kind of the cycle that it’s falling into,” she said.
Outside the US, there have been 15 overseas IPOs by Chinese companies this year, as of October 4, including nine listings in Hong Kong and six cross-listings in Switzerland, according to Renaissance. These deals have on average performed slightly better than those in the US, with a return from offer of minus 8%.
“I think that most companies will go where they don’t have to worry about being delisted,” Spear said, adding that Hong Kong and Europe are often seen as alternatives to the US for Chinese companies.
“There’s a very good possibility that we’ll start to see more large deals in Hong Kong,” Spear added.
A case in point is Chinese e-commerce giant Alibaba, which filed to list its Cainiao logistics business on the Hong Kong Stock Exchange on September 26, with plans to raise at least USD 1 billion through the initial public offering.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.