A record number of companies are dropping listing attempts on China’s response to the Nasdaq, as regulators tighten scrutiny of tech companies after halting Ant Group’s initial $ 37 billion public offering.
An analysis of figures published by the Financial Times by the Shanghai Star Market, launched with fanfare in July 2019, a record 76 companies suspended their IPO applications in March, more than double the previous month.
The wave of cancellations brings the total number of failed attempts to register on Star to more than 180. In November, the month Beijing fired Ant list Due to concerns over its lending activities, the total number of canceled IPOs was only 12.
The cancellations could complicate China’s efforts to develop its onshore capital markets – a long-standing political priority for Beijing that was made more urgent by a US law passed in December that could force Chinese groups to delisting from Wall Street.
They also report a turnaround by Chinese authorities, which had embarked on a so-called registration-based system when Star launched with the personal backing of President Xi Jinping.
Under this system, companies could register quickly with Star as long as they submitted the necessary financial statements to the China Securities Regulatory Commission. But experts say the CSRC is now going back on that commitment.
“The star [Market] was really meant to be a step in the direction of reform – what is happening now is certainly not, ”said Fraser Howie, independent analyst and Chinese finance expert. “This must be worrisome as even in the Chinese financial space, which was becoming more open and more market-oriented, part of this situation is receding.”
Investment bankers in China say that following the failure of Ant’s double IPO on Star and in Hong Kong, which would have been the largest in the world, companies seeking to list on the old stock market face more stringent regulatory requirements.
A person directly familiar with the CSRC’s execution strategy said that she took “two steps back after three steps forward”. They warned that Star’s IPO slowdown could last until the end of 2021.
A Shenzhen-based investment banker, whose company suspended several Star IPOs by the CSRC this year, said regulators are now asking companies about how certain business parameters are calculated. Executives should also disclose all of their personal bank accounts and be prepared to explain any transaction over 30,000 Rmb ($ 4,600).
Zhejiang Qizhi Technology, a provider of network security solutions, withdrew its IPO application from the Star Market in March after receiving 28 questions from regulators on topics such as its fluctuating valuation and whether it was too dependent on its top five customers for revenue.
“The regulator has gotten down to business these days,” the banker said, adding that the IPO review process was now so long that many companies needed larger banking teams. This “dramatically increased listing costs, prompting many companies to opt out.”
The number of companies waiting to be listed in China has now risen to nearly 2,300, according to market data provider East Money Information, a backlog that would take around four years to clear depending on the pace of introductions in China. scholarship in 2020.
The increased control over IPOs also comes as official fears grow that a flood of quotes could suck liquidity from the Chinese stock market, which has been a global latecomer this year.
Beijing’s growing preference for listings of certain types of tech companies, such as those located in strategically important areas – in particular semiconductors – could further restrict approved listings for Star’s IPOs, said Thomas Gatley, an analyst at consultancy Gavekal Dragonomics.
“They see that there is less money available and they really want it to go where it is needed,” he said.