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Chinese tech groups drop IPOs at record pace after ant list removal

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A record number of companies are dropping listing attempts on China’s response to the Nasdaq, as regulators tighten scrutiny of tech companies after halting Ant Group’s initial $ 37 billion public offering.

An analysis of figures released by the Financial Times by the Shanghai Star Market, which was launched with fanfare in July 2019, shows that a record 76 companies suspended their IPO applications in March, more than doubles the previous month.

The wave of cancellations brings the total number of failed Star listing attempts to over 180. In November, the month Beijing removed Ant from listing due to concerns about its lending activity, the total number of The canceled IPOs were only 12.

The cancellations could complicate China’s efforts to expand its onshore capital markets – a long-standing political priority for Beijing that was made more urgent by a U.S. law passed in December that could force Chinese groups to pull off Wall Street.

They also report a turnaround by Chinese authorities, which had embarked on a so-called registration-based system when Star launched with the personal backing of President Xi Jinping.

Under this system, companies could register quickly with Star as long as they submitted the necessary financial statements to the China Securities Regulatory Commission. But experts say the CSRC is now reversing that commitment.

Column chart of total IPO cancellations since the launch of Star Market in July 2019 showing the surge in canceled listings on the `` Chinese Nasdaq ''

“The star [Market] was really meant to be a step in the direction of reform – what is happening now is certainly not, ”said Fraser Howie, independent analyst and Chinese finance expert. “This must be worrisome as even in the Chinese financial space, which was becoming more open and more market-oriented, part of this situation is receding.”

Investment bankers in China say that following the failure of Ant’s double IPO on Star and in Hong Kong, which would have been the largest in the world, companies seeking to list on the old stock market face more stringent regulatory requirements.

A person directly familiar with the CSRC’s enforcement strategy said that she took “two steps back after three steps forward”. They warned that Star’s IPO slowdown could last until the end of 2021.

A Shenzhen-based investment banker, whose company suspended several Star IPOs by the CSRC this year, said regulators are now asking companies about how certain business parameters are calculated. Executives must also disclose all of their personal bank accounts and be prepared to explain any transactions over 30,000 Rmb ($ 4,600).

Zhejiang Qizhi Technology, a provider of network security solutions, withdrew its IPO application from the Star Market in March after receiving 28 questions from regulators on topics such as its fluctuating valuation and whether it was too dependent on its top five customers for revenue.

“The regulator has gotten down to business these days,” the banker said, adding that the IPO review process was now so long that many companies needed larger banking teams. This “dramatically increased listing costs, prompting many companies to opt out.”

The number of companies awaiting listing in China has now risen to nearly 2,300, according to market data provider East Money Information, a backlog that would take around four years to clear depending on the pace of introductions in China. scholarship in 2020.

The increased scrutiny of IPOs also comes as official fears grow that a flood of quotes could suck liquidity from the Chinese stock market, which has been a global lag this year.

Beijing’s growing preference for listings of certain types of tech companies, such as those in strategically important areas – particularly semiconductors – could further restrict listings approved for Star IPOs, analyst Thomas Gatley said. at the consultancy firm Gavekal Dragonomics.

“They see that there is less money available and they really want it to go where it is needed,” he said.

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