New York’s Nasdaq is all set to see its first initial public offering by a Chinese company in seven months.
According to the New York Stock Exchange’s online IPO hub, healthcare supplies maker Meihua International Medical Technologies is on track this week to price its debut share sale.
A security review of all platform companies before they list overseas is needed as per the new rules of the Cyberspace Administration of China (CAC).
Chinese firms raised $12.8 billion in the United States in the first seven months of last year, but the deals halted after the New York debut of Didi Global in late June triggered a regulatory backlash by Beijing. That brought tighter scrutiny for all offshore listings.
Some smaller Chinese companies are now reviving efforts to sell shares in the United States, confident they are not targeted by the new rules seeking to block offshore listings by firms handling large amounts of data or posing national security risks.
The US Securities and Exchange Commission has stepped up its supervision of Chinese companies listed overseas, including reviews of their cybersecurity.
SEC Chair Gary Gensler is especially critical of Chinese businesses that use shell companies to get around Chinese rules blocking foreign ownership for their industries.
Under these deals, the Chinese business forms a shell company in the Cayman Islands or somewhere else. The shell company then sells its stock to investors after listing in New York.
The shell company has no ownership of the Chinese company. Instead, it has service contracts with it. These arrangements are called variable interest entities, or “VIEs.”
“I worry that average investors may not realize that they hold stock in a shell company rather than a China-based operating company,” Gensler said.
“I think both US and Chinese regulators hope legitimate, law-abiding companies like us can grow bigger and stronger through listings,” Zhang Jiulin, chairman of insurance broker Hengguang Holding Co.
His company filed a draft IPO prospectus on Jan 18 with the Securities Exchange Commission (SEC), aiming to raise up to $19.6 million via its Nasdaq listing later this year.
Zhang brushed aside concerns that tighter Chinese control of cross-border data transfer will hamper the firm’s U.S. listing, saying Hengguang did not collect sensitive individual customer data.
Apart from the new IPO applications, more than a dozen Chinese companies have also amended IPO papers this year, SEC filings showed.
“Market participants are seeing the light at the end of the tunnel,” said Ming Liao, founding partner of private equity firm Prospect Avenue Capital.
(With inputs from agencies)