Wed. May 18th, 2022

A handful of companies are trying to become the first China headquarters to be announced in the US since July, in a test of regulators’ willingness to accept new listings after restrictions on both sides of the Pacific.

Six China- and Hong Kong-based groups submitted new or updated documents to the U.S. Securities and Exchange Commission in January for an initial public offering on the Nasdaq exchange. They were followed last week by Meihua International Medical Technologies, a manufacturer of disposable medical devices, which set a target offer price after its initial filing was filed almost six months ago.

Although each transaction is expected to be small in size, lawyers, stockbrokers and China experts will be watching closely for signs that there is still a future for the once thriving market for Chinese listings.

“They are definitely not Alibaba, but nonetheless. . . its optics will send a broader message, ”says Arthur Dong, a professor at Georgetown University’s McDonough School of Business and a specialist in Sino-US business relations. “If it succeeds, it will show there are still visible signs of life and it is not a completely dead market for Chinese companies to list.”

The efforts underscore the continued appetite of companies to gain access to the U.S.’s incomparably deep pools of investor capital, but their success is uncertain.

“It is not guaranteed, even if you have submitted the statement, that you will be able to make an offer. There is still a lot of discretion for the SEC in how that process goes, ”one former SEC official warned.

Gary Gensler, chairman of the SEC, last summer prevented staff from approving new listings from China until companies provided more thorough risk disclosures, and in December it published a list of details that it will require from companies. It is also start implementation of a Trump-era law that would force Chinese companies to delist if they refused to give audit regulators access to their audited accounts.

“This [IPOs] is a test case whether you are willing to provide this additional disclosure, the SEC will actually allow them to list, ”the former official added.

Regulators in China were also stricter rules for companies wishing to raise cash overseas as part of a broader suppression of the country’s technology sector. When the ride-sharing group Didi Chuxing ignored warnings not to list in the U.S. last year, the government quickly banned it from domestic application stores and prevented them from registering new users. It finally announced in December that it would begin plans to change his listing and Hong Kong.

Each of the companies currently trying to promote their U.S. listings states in their prospectuses that they believe they are not subject to the new restrictions because they do not process large volumes of customer data.

“It does not surprise me a bit that the three companies that are pending are all in a sense ‘old economy’ businesses – certainly onsexy and not connected to the internet, communications and telecommunications sectors,” Dong said.

China has been the largest source of foreign listings in the US over the past decade and has become a major source of revenue for Nasdaq and the New York Stock Exchange. The two exchanges were looking for alternatives IPO candidates in countries such as India and Singapore to help fill the gap, but executives also continued to lobby regulators and politicians privately to resume Chinese listings.

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