Red tape clogs China’s offshore IPO pipeline even as markets recover

HONG KONG, June 3 (Reuters) – More than a year after
China pledged to smoothen the process for offshore listings,
firms are reeling from a regulatory logjam that is unlikely to
ease soon, and staring at the prospects of sharply lower
valuations even as market sentiment improves.

Hopes for a revival in overseas listings were sparked by
Beijing’s vow in April to facilitate Hong Kong IPOs and a strong
debut of Zeekr in New York last month. China has clamped
down on offshore capital raisings since 2021.

A 6.1% year-to-date jump in the Hang Seng index as of
Friday, after having fallen as much as 18% in the past year, was
also expected to offer a window of opportunity for IPO entrants.

But bankers, China company executives and their investors
said they expect the offshore IPO drought to continue this year,
weighing on firms’ ability to raise capital in a slowing
economy.

Offshore listings are critical fundraising channels for
Chinese companies. These deals also account for a bulk of the
revenue global investment banks make in Asia.

A lack of such deals, as a result of China’s regulatory
crackdown as well as volatile capital markets and geopolitical
tensions over the past couple of years, has resulted in bank
layoffs and weighed on returns for private equity funds.

At least $20 billion worth of Chinese firms’ Hong Kong IPO
proposals have been awaiting approval for months, according to
Reuters calculations. Bankers close to those deals say most of
the sizable ones are unlikely to hit the market soon.

Home appliance maker Midea has been queried
about how a planned $2 billion-plus Hong Kong listing could
affect the value of its Shenzhen-listed shares, Reuters reported
on Wednesday.

Although monthly approval, on average, rose to roughly 13
IPOs in the first five months this year, up from 9 over nine
months last year after the new rules were introduced, none of
them is expected to raise beyond $500 million.

The China Securities Regulatory Commission (CSRC), which
unveiled rules for boosting oversight of offshore listings last
March, had approved just one IPO until May 24. The regulator’s
website on Friday showed it has approved seven more filings.

In response to Reuters request for comment sent last
Thursday, the CSRC said it had always supported domestic
companies to lawfully tap both onshore and offshore markets for
financing and development purposes.

A Hong Kong-based banker, who declined to be named due to
the sensitivity of the matter, however, said it sometimes takes
months from IPO application to regulatory approval.

The bottlenecks are mainly caused by inter-departmental
scrutiny, said the listing advisers.

Chinese companies with a so-called variable-interest-entity
(VIE) structure, common for firms with foreign investors, must
obtain approval from their respective primary industry
regulators under the new filing regime.

But the CSRC has no authority over other government and
communist party bodies, such as the cyberspace authority, which
has led to delays and uncertainty for companies, the advisers
said.

Since the implementation of the offshore listing rules, the
CSRC has “actively and orderly” processed the IPO applications,
and the number of companies that have completed filing has
increased each month, the regulator said.

APPROVAL PROCESS

CSRC approval, referred to as completion of IPO filings, is
the regulatory go-ahead a company needs before launching an IPO
– a process that ended years of laissez-faire approach to
overseas fundraising.

The approval process has on average delayed an offshore
offering by two to three months, with time needed for all
regulatory clearances totalling at least eight to nine months, a
senior banker at a foreign bank said.

Chinese companies raised $1.5 billion in offshore IPOs as of
May 17, down 21% on year, LSEG data showed, far below the $27
billion record set in 2021.

The CSRC said it would continue to “optimise the overseas
listing filing supervision mechanism”, and that “in the near
future more companies will successfully complete the filing”.

The lengthy regulatory process comes on top of China’s
slowdown and a property sector crisis, which have made both
issuers and investors wary about equity offerings and company
valuations.

JD Industrials, a VIE-structured company, whose Hong Kong
listing application was filed more than a year ago, is still
awaiting approval pending supplementary materials, a regulatory
disclosure shows.

Its parent company JD.COM has withdrawn…