Nasdaq will complicate the IPO for Chinese companies
Nasdaq Inc is about to introduce new IPO restrictions that will make it difficult for some Chinese companies to list their debut on the stock exchange.
While Nasdaq will not specifically cite Chinese companies in justifying the reasons for the change, the move is largely driven by concerns about the lack of accounting transparency of some Chinese market players, as well as their close ties to influential insiders, sources told Reuters..
At a time of escalating trade and technological tensions between the United States and China, the new Nasdaq restrictions represent the highest point of conflict in financial relations between the two largest economies in the world..
Nasdaq also unveiled some restrictions on listings last year in an effort to restrict IPOs of small Chinese firms.. These stocks often trade weakly because most securities remain in the hands of a few insiders.. Their low liquidity makes the stock unattractive to many of the big investors that Nasdaq seeks to please..
New tightening of listing standards reflects stock operator’s concern that some Chinese companies are seeking an initial public offering in the US. Last month, Luckin Coffee, which had an IPO in early 2019, announced the results of an internal investigation that showed the coffee chain’s COO and other employees had fabricated deals and sales reports..
The new rules will require companies from several countries, including China, to raise $ 25 million as part of their listing, or alternatively at least a quarter of their post-listing market capitalization..
This is the first time Nasdaq has set a minimum IPO size. This change would prevent several Chinese companies currently listed on the Nasdaq from going public.. Of the 155 Chinese companies listed on the Nasdaq since 2000, 40 have received IPO revenues below $ 25 million, according to Refinitiv..
Small Chinese businesses are interested in such placements as they allow their founders and sponsors to cash out in US dollars, which they cannot easily access at home due to Chinese capital controls.. Companies also use their Nasdaq listing status to convince lenders in China to fund them and often receive subsidies from local authorities in order to become publicly traded..
The proposed rules will also require audit firms to ensure that their international franchises comply with global standards, the sources noted.. Nasdaq will also audit small US firms that audit Chinese IPO accounts, sources added..