SEC halts Wall Street IPOs of Chinese companies as mulls new risk disclosures
The US Securities and Exchange Commission (SEC) has frozen registrations of Chinese companies for IPOs on US markets while it drafts new guidance for disclosing the risk of a Beijing regulatory crackdown to investors.
Chinese companies must not submit registrations for the sales of securities to the SEC until it has formulated new rules on how to share the risks they face from Beijing, insider sources told Reuters.
It comes after Chinese authorities banned ride-hailing giant Didi Chuxing from onboarding new users and launched an investigation into the company allegedly violating user privacy, just days after its $4.4bn New York IPO last month.
Didi’s shares had fallen by up to 40 per cent since making its Wall Street debut on June 30, but on Thursday they soared upwards by almost 50 per cent in pre-market trading after reports the company was considering going private.
They pared gains, however, when Didi later denied the privatisation reports on its social media account.
Investor fears of Beijing’s ongoing crackdowns have led to Chinese tech stocks listed in New York sliding 22 per cent in July – in what is set to be their steepest fall since the 2008 global financial crisis, according to Nasdaq’s Golden Dragon China index.
And Beijing has shown no sign of stopping, as it continues its regulatory crackdown on other companies with large amounts of data at their disposal – including technology and private education companies – and plans to uproot how Chinese companies list on foreign markets.
Earlier in the week, shares in music giant Tencent – which controls 80 per cent of China’s music streaming rights – slumped 16 per cent after Beijing ordered the company to end its exclusive music licensing agreements with record labels across the world. China’s State Administration of Market Regulation (SAMR) said Tencent had broken the country’s anti-monopoly rules.
After Chinese markets closed on Friday, Beijing’s transport ministry announced it would step up oversight of ride-hailing platforms, alleging some “infringed on drivers’ rights”.
Ronald Chan, founder of Hong Kong asset management firm Chartwell Capital, said owing to Beijing’s policymaking, “investing in China is two steps forward, one step back.”
His advice to foreign investors was to “make sure your portfolio is bullet-proof by having an all-weathered strategy.
“We like to blend income stocks and quality growth companies that typically move differently and give the portfolio some insulation from volatility and generate more asymmetric returns than a pure beta play.”