Chinese equity sales to US hit record despite threat of delisting

The funds raised by Chinese groups in the US stock markets jumped 440% in the first months of 2021, the lure of exorbitant valuations on Wall Street outweighing the threat of forced delisting.

Chinese companies have raised a record $ 11 billion this year on the New York Stock Exchange and Nasdaq through initial public offerings, follow-up stock sales and convertible bond issuance, according to data from Dealogic.

Big announcements included $ 1.4 billion IPO by e-cigarette maker RLX technology and a $ 947 million bid from software company Tuya, along with 20 other Chinese groups.

The multitude of transactions underscored the attractiveness of the vast US capital markets for Chinese companies despite the tensions between Washington and Beijing.

The NYSE this year struck off three Chinese state-run telecommunications companies over their alleged ties to the country’s military. Others could suffer the same fate after U.S. lawmakers passed legislation in December that forcibly remove groups who refuse to submit to US inspections for three years, which is prohibited by Beijing.

But bankers and IPO lawyers said a U.S. listing still gave Chinese groups access to a deeper market and more covered by stock analysts, even as the Hong Kong and China stock exchanges mainland did. sought to close the gap.

“Implementation [of the delistings law] is still a way out, ”said Jason Elder, partner at Mayer Brown law firm in Hong Kong. “Most companies wouldn’t want to sacrifice a few years of growth until this wears off, especially with the constructive market environment we currently have in the United States.”

The enrollment boom also reflected China’s strong economic recovery from the Covid-19 pandemic.

China reported last week record year-over-year GDP growth by more than 18% for the first quarter, illustrating how Beijing’s decision to impose strict lockdowns a year ago helped the country emerge from the pandemic much earlier than its global peers.

“The Chinese economy is expected to experience strong growth in 2021. Add to that the emergence of a group of very strong companies and of course you have investors keen to find ways to invest in these names,” he said. said Craig Coben, co-head of global Asia-Pacific capital markets for Bank of America.

While the shares listed in Shanghai and Shenzhen have capped After a global performance in 2020, the US market rose this year, with the benchmark S&P 500 rising 10%.

The American market also benefited from more robust evaluations, with a price / earnings ratio of the S&P 500 standing at 32 times compared to 19 times for the CSI 300 of mainland China. The Nasdaq Golden Dragon Index of Chinese companies listed in the United States was trading at an impressive PE ratio of around 100 times.

This has helped boost IPO valuations and created a receptive environment for sales of shares of already listed Chinese companies.

“Investors are focused on growth margins and the prospect of profitability here and now,” Coben said, “and they will address regulatory changes or geopolitical events as they materialize.”

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