When Luckin Coffee admitted the company billed more than USD 300 million in fraudulent sales in April, a wave of regulatory scrutiny hit US-listed Chinese companies, with firms like iQiyi and GSX being targets of short attacks. Shortly later, in May, the US Senate passed legislation that could disqualify an array of Chinese firms from listing their shares on US stock exchanges.
As one result of the uncertainties affecting US capital markets, and also partly due to loosened listing requirements in China, more Chinese tech firms are looking at domestic stock exchanges for public offerings, such as the Hong Kong Stock Exchange, the Shanghai Star Market, and the Shenzhen ChiNext board.
Longtime US-listed firms like NetEase and JD.com sought secondary listings in Hong Kong, following Alibaba’s record-breaking homecoming in November of 2019. The Shanghai Star Market, a tech-centric board modeled as the Chinese answer to Nasdaq, saw over 110 IPOs in only one year, with Alibaba’s financial services spin-off Ant Group as the latest company to file for an IPO on the new bourse on August 25.
To analyze this trend and other factors affecting the evolving capital market, KrASIA recently sat down with Bob McCooey, head of global capital markets and the Asia Pacific at Nasdaq.
The below interview is edited for brevity and clarity.
KrASIA (Kr): What kind of trends do you see for Chinese IPOs and where they are heading?
Bob McCooey (BM): Last year, there were 32 Chinese IPOs in the US. This year, there have been, I believe, 23 in total between us and the New York Stock Exchange (NYSE), and we’ve been blessed with 20 of those 23.
Competition is a good thing. We want companies to have choices, and it’s great that the Hong Kong Stock Exchange changed the rules to allow more companies to come. When we look at the number of companies that are private and thinking about capital markets, the number of companies that are coming to the US is a fraction of those that are listing in Shanghai, Shenzhen, and Hong Kong, and a fraction of those in technology which are becoming more and more of a dominant force in the IPO market, especially from Asia.
So, we think that our platform provides a lot of value for companies, but really it’s about the liquidity, support services, and global visibility.
It is a challenging proposition for any company to become a public company, and Nasdaq has done something unique—we have a service business that helps companies not only to make the transition from private to public, but also to support them as public companies.
For a Chinese company, we do that locally in their timezone and language from our Hong Kong office. We’re able to really support companies on our market from other places around the globe and we think that differentiates us from our friends at the Hong Kong Stock Exchange, the Shanghai Star Market, or any other exchange across Asia. So tech will certainly be a very important part of the market, but our focus is really on supporting public companies every day.
Kr: As regulators increase scrutiny on US-listed Chinese companies, do you have any concerns about the flow of Chinese IPOs?
BM: You still have so many of these companies who are still choosing to come to the US markets, whether it’s Kingsoft Cloud, Dada, or Li Auto. This year alone, 20 Chinese companies joined Nasdaq. We think that’s representative of the fact that they believe a solution will be found.
I can’t predict when that will happen, but our two governments will work together to find a solution. And that’s not an issue for Nasdaq or NYSE, and potentially not even the US Securities and Exchange Commission (SEC) or the Public Company Accounting Oversight Board (PCAOB). This is really a government-to-government issue and we think that, over time, those things will be resolved.
We’ve had super successful IPOs. Li Auto went up 43% on the day they had their IPO. They raised USD 1.1 billion, so there’s no doubt that investors are still interested in exposure to the second-largest economy in the world. I continue to think that the pipeline continues to be very strong.
Kr: What is your view on the Luckin Coffee fraud scandal that happened in April?
BM: I would say that there’s been a lot of focus on Luckin, but it is only one company that over the course of a decade has been caught up in a fraud scandal on Nasdaq. It is not really representative of the success that Chinese companies have had in the US market.
I think that Nasdaq has continued to be the leader in terms of our regulatory program and defining transparent rules so that everyone understands the requirements to remain a Nasdaq listed company. We really focus on investor protection as a paramount aspect of our market.
Kr: A recent Forbes article posed that around 200 Chinese companies could be forced to delist from US exchanges due to the Sarbanes–Oxley Act. What is the impact of this regulation on US-listed Chinese companies?
BM: I haven’t read that article, and so I’m not aware that Forbes is indicating that 200 companies are potentially being delisted. I would say there’s been a lot of talk recently during this election year. Chinese listings in the US has been a very hot topic that both political parties can agree on.
I would say that anything—any action that’s being taken in the US—will be a deliberate action taken after lengthy evaluation and discussion, to ensure that it is in the best interest of investors.
Companies will not be immediately delisted if investors will be hurt. There are a lot of different groups in the US that need to weigh in on any kind of changes to US policy in addition to regulators and legislators, including investors from mutual funds, from index companies, from investment banks, and from trading organizations.
We encourage collaborative efforts regularly through our government relations group at Nasdaq to make sure that the US government and the Chinese government get to a place where they can solve this. I firmly believe that we’ll come to a solution that will be in everyone’s best interest. Chinese companies will not only continue to be listed in the US, but will provide great success stories, as we’ve already seen, giving investors the ability to invest in some of the most interesting, dynamic, innovative, and fast-growing companies in the world.
Kr: Looking back on the first half of the year, how has Nasdaq adjusted to the massive economic uncertainty introduced by the pandemic?
BM: We were in planning meetings in late March and early April, talking about the fact that there might not be any more IPOs for the rest of the year. We were all wrong about that, and we had no idea what was going to happen.
Many companies showed incredible agility to pivot their business models, while corporates and investment banks transitioned to virtual roadshows, including ones that were from China. Chinese companies were hosting their virtual roadshows at night or through the night to meet with US investors.
I think that just goes to show that the markets are very resilient, that people are innovative. To be able to do 65 IPOs just on Nasdaq between the months of June and July is incredible. There’s no chance that I would have told you in early April that we would do 65 IPOs for the rest of the year, let alone just in two months.
Kr: In terms of the number of listed companies, healthcare firms outnumber tech firms on Nasdaq. As a result of COVID-19, do you see a growing overlap in the tech and healthcare sectors?
BM: Healthcare companies today are not only creating a cure or vaccine for this awful pandemic, but are also working to do things that will change our lives. These are really the companies that are changing the world. We’ve seen the healthcare segment of Nasdaq’s listed companies grow to be the largest group of companies.
We’re famous for our technology companies and I think that they are really representative of the fact that Nasdaq is the home for disruptive, growth-oriented entrepreneurial companies. We’re so pleased that the five largest companies in the US capital market, and the only company to ever hit USD 2 trillion in market cap, Apple, are all listed with Nasdaq.
One of the greatest things about Nasdaq is the fact that we are the most liquid market in the world. So when healthcare companies, which raise money often, come to market once or twice a year, they can do that in a very deep and liquid market. Also, Nasdaq’s pricing in terms of our annual fees is very beneficial for companies like that.
Healthcare has certainly been the number one segment of companies that have been doing IPOs since COVID-19 began.
Kr: About the healthcare sector, we’re seeing increased competition from Asian exchanges. For example, since April 2018, the Hong Kong Stock Exchange reformed some of its listing requirements to allow for loss-making biotech and healthcare companies. How do you see this influencing the future of Asian healthcare IPOs?
BM: We welcome competition. In terms of a competitive dynamic, it would be antithetical to Nasdaq’s philosophy for me to say that it would be a bad thing to have another exchange opportunity for companies.
We welcome the fact that companies now have more and more choices, whether it’s the Hong Kong Stock Exchange or the Shanghai Star Market. Those are wonderful options for companies, and every new entrant into the market forces the incumbents to continue to innovate and become much more client-centric.
One of the business units that we have at Nasdaq provides technology to exchanges around the globe. We either provide matching technology or regulatory technology to 125 exchanges.
In fact, we count the Hong Kong Stock Exchange as a customer, as well as others including the Singapore Exchange Limited (SGX), the National Stock Exchange of India (NSE), the Australian Securities Exchange (ASX), and every exchange in the Middle East, including Tadawul, which did the largest IPO in history last year with Saudi Aramco using Nasdaq technology.
Kr: How do you lure companies in the Asian-Pacific area, especially those from China, to list on Nasdaq?
BM: It’s the ability to be in, or to have the chance to join the Nasdaq 100 in the future. For a company like Pinduoduo, which has joined the Nasdaq 100 after just two years as a public company, Nasdaq represents a tremendous advantage for them—one that will set them apart.
Nasdaq is the home for innovative entrepreneurial disruptive game-changing companies. I think that having the five largest companies in the world and having some of the most dynamic companies in every sector—whether in healthcare, consumer retail, technology, or finance—is a big attraction.
Companies from China want to be alongside these kinds of companies, and they really want to be part of the Nasdaq family. They want to sit alongside Amazon, JetBlue, Whole Foods, and some of the other amazing brands that are listed with Nasdaq.
For us, we have the deepest pool of liquidity in the US capital markets. I talked about the services that we provide, including our investor relations, corporate governance, and communications. Compared to our competitor here in the US, our annual fees are one-third of their fees. We think that is a very important distinguishing factor.
Kr: As Pinduoduo recently broke into the Nasdaq 100 index, does this typify some of the growth we’ve seen from a new age of Chinese tech companies coming to the US capital markets?
BM: Pinduoduo is an amazing company. We’re so honored to have them joining the Nasdaq 100. They will be our fifth Chinese company to join the index, alongside JD.com, Baidu, Trip.com, and NetEase.
One of the great things about the Nasdaq 100 is its inclusive nature compared to the other major indexes in the US, the Dow, and the S&P 500. The Dow is a smaller, narrower index with a lot of traditional old school companies, although five Nasdaq companies are part of the Dow. The S&P 500 is obviously much broader, but those two indices do not allow for foreign private issuers anyone from outside of the US.
The Nasdaq 100 is inclusive and we are global in our thought process around this index. We’re so pleased that Pinduoduo ended up being another representative of that philosophy. I was honored to host their opening bell around two years ago. To see them grow from around USD 25 billion global market cap at the time of their IPO, and now to be at around USD 100–105 billion, depending upon the day, is outstanding.
Pinduoduo certainly has executed tremendously well during this period, even with the recent transition from Colin (Huang) to Lei Chen at the CEO level. The company is just an amazing execution machine, and the US markets have rewarded those shareholders and rewarded the management team by continuing to invest in their stock.
Kr: Do you think that recent bullish investing in Chinese companies derives from the fact that China’s economy has recovered from the pandemic more quickly than other markets?
BM: I think that could be part of the reason. I think certain sectors have done really well. When you look at Pinduoduo’s business, it is a combination of Costco, Groupon, and Disney, with a little bit of Amazon thrown in there.
The companies that have been successful during COVID-19 have been companies like Costco, who had amazing earnings, while Amazon certainly has been a tremendous success story during COVID-19.
I think that investors are looking globally for opportunities. China had recovered more quickly than other markets.
Therefore I think you’re right about some of the companies, but I wouldn’t say that every one of the over 150 Chinese companies on Nasdaq has performed well during the past six months. There are ones in certain sectors that performed exceedingly well because they happen to be in industries that were able to take advantage of the current environment.
Kr: In Southeast Asia, we are seeing a lot of emerging tech unicorns, including, Grab, Gojek, Tokopedia, and Traveloka, that have expressed a desire to tap into public markets. How do you view the next generation of tech unicorns from the region?
BM: I think it was great to have Sea Group come to the US a couple of years ago, and they have actually been another beneficiary of COVID-19, while their market cap crossed into the USD 55 billion range.
The markets are a function of a number of different factors and one of them is sentiment. This means that if a company goes public and has great success, that gives inspires confidence in aspiring peers.
I think there is opportunity across all of Southeast Asia. In countries including Vietnam, the Philippines, Indonesia, Malaysia, and others, there are a number of companies that we think could be public companies in the next few years.
It’s great that they have choices, whether it is SGX, IDX, or the US capital markets where Nasdaq and our competitor will compete for that listing. We see a wonderful opportunity, similar to when Chinese companies burst onto the scene 12 or 15 years ago, with consistent listings from Chinese companies. There are opportunities for Southeast Asia to deliver significant IPOs over the next decade.
Kr: Since Nasdaq now has a deepened partnership with SGX, do you have plans to attract these companies to execute dual listings in both Singapore and on Nasdaq?
BM: Well yes, but part of our agreement with SGX is not exclusive, so they don’t have to do a dual listing. At the same time, if they are already listed on one market, they can potentially list on the other. A company could choose to list on Nasdaq and then evaluate a SGX listing down the road, or they could do a dual listing at the time of their IPO.
We want to make sure that private companies have the opportunity to talk to our friends at SGX, who will make sure that they think favorably about Nasdaq. It goes both ways. We’ve really created an opportunity for us to be salespeople for each other’s markets. We think that, down the road, it is a good thing to have private companies educated about the different markets.
Kr: How has Nasdaq as an organization faced the challenges that come with a transition to remote work?
BM: Six months from now, Nasdaq will celebrate its 50th anniversary, and we were founded on the principle of decentralization. We did not want to force individuals to come to one place to trade, so we used telecommunications and technology to make markets more efficient. That’s the fundamental thesis around Nasdaq.
We did something very similar 49 years later, as the pandemic hit and we implemented our Business Continuity Plan, which we work on and review regularly in case something like this does happen. I really think our implementation of BCP was something amazing, as we were more prepared.