Boom in Chinese companies listing in the US
The number of Chinese firms listed in the US increased in 2018, with Chinese issuers flocking to US capital markets and deal flow hitting an eight-year high, including multiple billion-dollar offerings such as Tencent Music.
A total of 43 Chinese companies were newly listed in the US market last year, up from 24 firms in 2017 and 10 in 2016, according to Wind, a financial data provider.
Chinese firms raised a combined $8.9 bn on US exchanges – the highest level since 2010 – with Chinese issuers accounting for 17 percent of US IPOs and 19 percent of total proceeds, according to Renaissance Capital. That means Chinese company IPO proceeds in the US increased 140 percent year on year, according to EY.
In 2018 the top two industries by IPO proceeds were online entertainment and online consumer products, accounting for 65 percent of 2018 total funds raised by Chinese IPOs on US exchanges. Video-streaming company iQiyi’s $2.4 bn listing, ranked first in terms of proceeds in 2018, was the second-largest Chinese IPO on a US exchange, following Alibaba in 2014.
Online group discounter Pinduoduo at $1.6 bn, electric vehicle maker NIO at $1.15 bn and music-streaming company Tencent Music at $1.1 bn were the other major Chinese listings on US exchanges in 2018.
‘The boom in Chinese companies listing in the US coincided with a 26 percent decline in the Shanghai Composite Index,’ notes Renaissance Capital in its 2018 Annual Review. ‘We believe companies sought out the relative stability of US capital markets in response to domestic volatility and a tightening credit environment in China.’
King Li, EY’s TMT assurance partner, says: ‘In the past two years, Chinese IPOs on the US stock market saw another climax, with a large growth in volume and proceeds over previous years. With the rapid changes in China’s domestic economy and sector development, the periodicity of sector development is also reflected in the companies listed in the US.’
A stricter Chinese listing process has contributed, too, notes Jane Yang, EY Greater China government & public service market segment leader. ‘Factoring in both internal and external influences, the [Chinese] capital market is weakening,’ she says. ‘Under this market environment, the pace of IPO approval by China’s Issuance Appraisal Committee has been slowing down and stabilizing. A more stringent IPO application review has driven a higher rejection rate in 2018.’
This is seen in the number of A-share IPOs in the pipeline: there were 278 companies in the IPO queue of the China Securities Regulatory Commission last year, down from nearly 900 in 2013.
In the long run, however, such a development could prove beneficial, adds Yang. ‘Stricter scrutiny has forced companies to be more self-disciplined – some even withdrew their applications – which has helped ease the IPO backlog and relieved the pressure of IPO issuing pace,’ she explains. ‘In the meantime, stricter scrutiny has also helped enhance the quality of businesses applying for listing.’