Chinese firms flood into U.S. IPOs despite delisting threat

Elva Mankin

By Scott Murdoch, Kane Wu and Julie Zhu

HONG KONG (Reuters) – The U.S. government is threatening to delist Chinese companies that do not meet U.S. accounting standards, but mainland firms are rushing to offer their shares on New York exchanges, sometimes in blockbuster deals.

Despite the threat and rising U.S.-China tensions, the allure of a valuation on the world’s deepest stock market makes the risk of eventual delisting manageable, while financial-technology companies find the regulatory burden of a U.S. listing lighter than that in mainland China or Hong Kong, companies, advisers and investors say.

“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 Brown, a Hong Kong partner at law firm Mayer Brown.

So far this year, Chinese companies have raised $5.23 billion in U.S. initial public offerings, more than double the $2.46 billion for the same period last year, Refinitiv data show.

Property management company KE Holdings <BEKE.N>, backed by Chinese tech giant Tencent Holdings Ltd <0700.HK> and Japan’s SoftBank Group Corp <9984.T>, raised $2.12 billion in its U.S. listing on Thursday, the 18th Chinese firm to list there this year.

The pricing for KE, widely known as Beike, came just three days after Treasury Secretary Steven Mnuchin said Chinese companies that do not comply with U.S. accounting standards would be delisted at the end of 2021.

CEO Stanley Peng told Reuters on Thursday Beike had planned to list for two years and saw the delisting threat as minimal.

Beike follows Xpeng, an electronic-vehicle maker, which has filed for an IPO. Lufax, an online wealth-management firm, has lodged a confidential application for a U.S. listing, a person with direct knowledge of the deal told Reuters. The company did not respond to a request for comment.

A Hong Kong asset manager who bought into Beike and Li Auto Inc’s <LI.O> $1.1 billion IPO two weeks ago said U.S.-China tensions have not whetted his appetite.

“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 the fund manager, who asked not to be named as he is not authorised to speak to the media.

Financial advisers to listing candidates said some companies were not being deterred from U.S. listings because the rules have yet to be implemented and 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, officials said over the weekend.

(Reporting by Scott Murdoch, Kane Wu and Julie Zhu in Hong Kong, Yingzhi Yang in Beijing and Shanghai Newsroom; Editing by William Mallard)

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