Tag Archives: initial public offering

China Continues To Welcome Foreign Capital But On Beijing’s Terms

THE DETAILS OF China’s well-signalled coming restrictions on overseas listings by its start-ups are slowly becoming clearer.

A consultation paper issued on December 24 by the China Securities and Regulatory Commission lays out a regime that would require any company wanting to sell shares abroad to register with it. The commission would review the listing plans and coordinate with other relevant agencies.

Authorities would have the power to block any overseas listing they considered a threat to national security, which would encompass compliance with the country’s new data protection regime.

The new rules fall short of a blanket ban on overseas initial public offerings (IPOs), which some had feared. However, they would give authorities blanket veto power over any proposed IPO or secondary listing considered undesirable. Chinese firms will be free to continue to take foreign capital where it is supportive of, or at the least, does not conflict with China’s national goals.

More surprisingly, perhaps, the new regime would not kill off variable interest entities (VIEs), the governance structure often adopted by Chinese companies to get around strict restrictions on Chinese companies taking foreign investment. While VIEs have long existed in legal limbo, they will be allowed to register with the securities regulator providing they are legally compliant.

The legal compliance could well refer to not falling afoul of a blacklist that comes into effect on January 1 of sensitive sectors that would be off-limits to foreign investors.

The regulatory uncertainty has already had a chilling effect on overseas listings, especially since ride-hailing app company Didi Chuxing incurred the wrath of regulators when it pushed ahead with its $4.4 billion IPO in New York in June.

Authorities were cracking down on the tech sector, and Didi’s blanking of their advice to pull the listing led to a series of retaliatory measures and, earlier this month, an announcement that it would delist from New York and switch to a Hong Kong share listing.

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Beijing Reportedly Tightening Up On Tech Company Foreign IPOs

CHINA’S SECURITIES REGULATORS indicated last month that stricter supervision of all firms listed offshore was coming. Reports now say this sweeping intent is being narrowed to a ban on foreign listings by platform technology companies whose data poses potential security risks. Any proposed foreign listing would have to pass Cybersecurity Administration of China review.

In recent months, Beijing has tightened its grip on the platform companies. Particular attention is being paid to unfair competition and the companies’ handling of the enormous troves of consumer data they collect. Foreign initial public offerings have been part of that, but have become more politically sensitive after Didi Global, parent of ride-hailing app Didi Chuxing, ignored the authorities’ request to pull its share offering in New York.

The new rules to limit foreign listings are also reported to include a tightening up on variable interest entities (VIEs), a legally ambiguous corporate governance structure used by technology companies to raise capital overseas as it gets around Beijing’s restrictions on foreign investment in sensitive industries such as media and telecommunications. The changes could include greater shareholding disclosure and bringing VIEs, generally incorporated in tax havens, under direct legal jurisdiction.

One intent behind the change may be to drive tech companies back to domestic markets on the mainland or Hong Kong for their listings. After the halting of Ant Group‘s $37 billion share flotation last year and subsequent regulatory tightening over domestic new listings, scores of tech companies seeking outside capital dropped plans to list on Shanghai’s STAR Market and Shenzhen’s ChiNext market and rushed to list overseas, particularly in New York.

More broadly, the new rules, if they come to pass as advertised, will be in line with Beijing’s national security concerns, imagined or not, that foreign ownership could result in the disclosure or compromise of mass Chinese user data.

They will also align with the leadership’s growing intent to ensure that business supports China’s national interests as the Party defines them. Keeping the wealth created by the country’s burgeoning technology sector at home to fund more indigenous development in the sector is one of them.


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China’s Agricultural Bank To Raise $30B Through IPO

This may not seem an ideal time for a bank to be raising capital: the government is reining in bank lending as part of its crackdown on real estate speculation; investors worldwide are spooked by the Eurozone debt crisis; bank valuations are at lows; and many banks are seeking to raise capital to bolster inadequate balance sheets. Yet Agricultural Bank of China is going to market in Shanghai and Hong Kong with an initial public offering of 15% of its equity said to raise up to $30 billion. That would make it the world’s largest IPO, topping the $22 billion Industrial & Commercial Bank of China (ICBC) raised in 2006. The securities regulator is due to review the offer plan on June 9, with mid-July said to be the target date for the IPO itself.

Four other big state-owned banks, ICBC, China Construction Bank, Bank of China and Bank of Communications have announced plans to raise $27 billion of new capital by selling shares and bonds this year, now regulators have raised the mandatory minimum capital adequacy ratio to 11.5%. Agricultural Bank, the country’s fourth-largest by assets, is the least profitable of the four biggest banks to go through the state-led restructuring of a couple of years back. It got a 130 billion yuan government cash injection and scratched 816 billion yuan of non-performing loans from its balance sheet in 2008.

The bank says it had a capital adequacy ratio of 10.07% at the end of 2009 and its non-performing loan ratio stood at 2.91%. It also says it increased its profit by 26% to 65 billion yuan last year, and forecasts net income will rise to at least 82.9 billion yuan in 2010. But to raise the sort of sum it is looking for in the current climate, its underwriters are going to have to have some big Chinese institutional investors lined up.

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