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Beijing’s rule changes to revive China’s IPO prospects in 2022, bankers say

FILE PHOTO: The Chinese national flag is seen in Beijing, China
FILE PHOTO: The Chinese national flag is seen in Beijing, China April 29, 2020. REUTERS / Thomas Peter // File Photo

December 17, 2021

By Scott Murdoch and Julie Zhu

HONG KONG (Reuters) – China’s initial public offerings (IPOs) are set to hit the mark in 2022 after Beijing is expected to announce new regulations for the offshore listing of Chinese companies, bringing clarity to confused investors, investment bankers and analysts said.

Regulators are scrutinizing new regulations scrutinizing plans for offshore listings of Chinese companies with variable-interest institutional structures (VIEs), where a Chinese company set up Foreign companies for the purpose of listing abroad allow foreign investors to buy shares.

That structure has fueled the flood of listings in the United States over the past two decades, according to Reuters.

New regulations will come after a quiet 2021 for Hong Kong, which accounts for 16% of Asia-Pacific listing volume: The city has seen IPOs worth 26.7 billion USD so far this year, compared with 31.8 billion USD in the same period in 2020, Refinitiv data has shown.

Adding a second listing, which includes primary and secondary dual listings of Chinese companies listed in the US, has $41.3 billion in operations in Hong Kong in 2021 so far, compared with 50 $0.8 billion in 2020.

Bankers say the new rules will provide transparency to listing prospects and will entice them to move into the mass market, particularly those in the tech and media sectors, which are traditionally the most important players in the market. at the center of an unprecedented regulatory crackdown this year.

“If you were to use one word to describe IPOs in 2021, it would have to be ‘uncertainty. There is too much policy uncertainty,” said Li Hang, head of equity markets (ECM) and institution of investment bank CLSA.

“Next year will be more and more policy certainty than 2021… Uncertainty can mean tougher (rules) but there will be less uncertainty. That is an important thing. Uncertainty really hurts IPOs.”

Bankers expect Hong Kong’s second listing figure to improve in 2022 as the risk of being delisted from the US due to failure to meet audit rules remains high.

“There are more than 50 Chinese companies listed in the United States that are not listed in Hong Kong but meet the listing requirements here,” said David Chin, head of UBS in China.

“We will likely see many of them come to Hong Kong to receive (second) listings next year.”

STRONG YEAR

Despite China’s loosening of trading volumes, across the Asia-Pacific region, including Japan, there have been $166 billion in IPOs this year, up from $120.1 billion last year. became the region’s strongest year since 2010.

South Korea, India and Australia all recorded large increases in the value of transactions.

“Historically when China’s growth slows down, the region slows down too. This year, despite the slowdown in China, other markets have filled that void,” said William Smiley, co-head of equity markets at Goldman Sachs Asia, Japan.

The tech and healthcare sectors provided more than a third of IPOs in the region during the year.

Magnus Andersson, ECM Asia Pacific co-director, said: “Next year’s process looks to be more geographically diverse, with South Korea, India, Southeast Asia and Australia larger than China. national and more diverse in the extent of industry expansion”. Morgan Stanley.

“We are probably seeing less technology and media and more healthcare, industry and FIG (financial institutions group). There is a rotation to the cyclical theme going on globally. ”

CITIC, Goldman Sachs and Morgan Stanley are the top three ranked banks for Asian equity markets performance in 2021, Refinitiv data shows.

(Reporting by Scott Murdoch and Julie Zhu in Hong Kong; Editing by Sumeet Chatterjee and Kenneth Maxwell)

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Bobby Allyn

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