Despite the threat of deliting for non-compliance to U.S. accounting standards, Chinese mainland companies are rushing to list their shares on U.S. stock exchanges thus increasing the risk of U.S. investors to the Trump Administration’s delisting ban.
Despite trade threats and rising U.S.-China tensions, the allure of easy money and high valuations in the world’s deepest stock market makes the risk of eventual delisting manageable. Fintech companies find the regulatory hurdles of a U.S. listing much easier to manage compared to getting listed in Hong Kong or in mainland China, opine advisers and investors.
“In the immediate term, I don’t see this impacting views of the U.S. markets as a strong choice of listing venue,” said Jason Elder, a Hong Kong based partner at law firm Mayer Brown.
According to Refinitive data, Chinese companies have so far raised $5.23 billion in the United States, more than double of its $2.46 billion amount it raised last year during the same period.
KE Holdings, a property management company which is backed by China’s Tencent Holdings Ltd and Japan’s SoftBank Group Corp, raised $2.12 billion in its U.S. listing on Thursday – the 18th Chinese firm to list there this year.
Incidentally, KE’s pricing came just three days after Treasury Secretary Steven Mnuchin disclosed that Chinese companies found in non-compliance with U.S. accounting standards would be delisted at the end of 2021.
According to KE’s CEO Stanley Peng, the company had planned its U.S. listing two years ago and it sees the delisting threat as minimal.
KE’s listing will now be followed by Xpeng, which has filed for an IPO. Xpeng is an electronic-vehicle maker.
Lufax, an online wealth-management firm, has also filed a confidential application for a U.S. listing, said a source with direct knowledge of the deal.
Lufax did not respond to a request for comment.
“The only things that are going to make me worried are when U.S. pension funds are prohibited from investing in Chinese IPOs or when China and the U.S. engage in conflict,” said a Hong Kong based asset manager on the condition of anonymity since he was not authorised to speak to the media.
According to financial advisers to listing candidates, Chinese companies may not be deterred from U.S. listings since the rules are yet to be implemented; also there is the potential for “co-auditing” in the United States.
“In a potential concession, the auditing can be performed by a U.S. parent company of the China-based affiliate tasked with auditing the Chinese firm. Still, new companies would have to comply immediately,” said U.S. officials over the weekend.