Chinese companies list in the US at a record pace despite risks

Chinese companies are listing in the US at the fastest pace ever, brushing off tensions between the world’s two biggest economies and the continued risk of being kicked off American exchanges.

Companies from the mainland and Hong Kong have raised $6.6 billion through initial public offerings in the US this year, a record start to a year and an eightfold increase from the same period in 2020, data compiled by Bloomberg show. The largest IPO is the $1.6bn listing of e-cigarette maker RLX Technology, followed by the $947 million offering of software company Tuya.

That’s even as Sino-US tensions show few signs of easing and the threat of Chinese companies being delisted from US exchanges remains. In fact, the US Securities and Exchange Commission said last month it would begin implementing a law forcing accounting firms to let US regulators review the financial audits of overseas companies. Non-compliance could result in a delisting from the New York Stock Exchange or Nasdaq.

The risk for mainland firms is high given China has long refused to let US regulators examine audits of its overseas-listed companies on national security concerns.

“They would acknowledge this is a potential risk, and if something happens they might need to get prepared for a rainy day,” said Stephanie Tang, head of private equity for Greater China at law firm Hogan Lovells. “But the risk itself would not prohibit those companies from going to the US, at least in the second half of this year or probably toward next year.”

Despite risks, the pipeline continues to grow, setting up 2021 to potentially exceed last year. Chinese firms raised almost $15bn through US IPOs in 2020, the second highest on record after 2014, when e-commerce giant Alibaba fetched $25bn in its float.

Didi Chuxing has filed confidentially for a multi-billion-dollar US IPO that could value the Chinese ride-hailing giant at as much as $100bn. Uber-like trucking start-up Full Truck Alliance is also working on a US listing this year that could raise about $2bn, sources said.

“Chinese companies in the new economy do not seem to have been deterred from seeking US listings despite the ongoing tensions,” said Calvin Lai, a partner at Freshfields Bruckhaus Deringer. “They take that as one of the risks but that doesn’t tilt the pendulum.”

Additional share sales by Chinese companies have also been well-received in the US this year, delivering an average return of 11 per cent from their offering prices in the following session, according to data compiled by Bloomberg.

And while rival financial centres like Hong Kong have in recent years changed their listing rules to make it easier for new economy companies to go public there, that has not stopped the flow of firms going stateside. In fact, the traffic now goes both ways, with US-traded Chinese firms getting a second listing in Hong Kong to expand their investor base and as a hedge against the delisting risk.

Such secondary listings raised almost $17bn last year and have fetched over $8bn this year already, Bloomberg data show. Bankers said many companies go to the US knowing they can subsequently list in Hong Kong.

For example, Didi is also exploring a potential dual offering in Hong Kong later, a source said. Chinese electric car maker Xpeng is among companies looking into a share sale in the financial hub less than a year after going public in New York.

US capital markets have long attracted Chinese companies for a number of reasons: their greater liquidity, broader investor base and the cachet associated with a US listing. Technology and FinTech firms have flocked to the US because of its more streamlined process as well as greater openness to loss-making businesses.

“The US still remains a magnet for the IPOs of Chinese technology companies,” Ms Tang said. “Just in terms of the pipeline, I don’t see any pause to that. I think the pipeline is very strong.”