October 31, 2020


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No fear of delisting risks: Why do Chinese companies go public in the US instead of decreasing but increasing?

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Not long ago, U.S. Secretary of State Pompeo reiterated the “Clean 5G Network Plan” and said that he is stepping up efforts to remove “untrusted” Chinese applications from the US digital network. And named Ali, Baidu, Tencent, Huawei and other companies to threaten US information security.

Under the tense situation and the trust crisis of China Concept Stocks triggered by Ruixing, the environment of China Concept Stocks in the United States has deteriorated. Many companies listed in the United States have either chosen to privatize and delist, or choose to return to Hong Kong for a second listing. . At present, from the ideal car to the shell finding a house, when this happens, all of them are moving against the current and going to the United States for listing.

Not long ago, the official website of the US Department of the Treasury issued the “Report on Protecting American Investors from Major Risks of Chinese Companies”, which put forward 5 audit recommendations for Chinese companies listed in the US. It stated that it would implement “dual auditing” of Chinese companies listed in the United States, claiming to raise the listing threshold for Chinese companies listed in the United States, and that Chinese companies that do not meet U.S. regulatory requirements will be delisted before the end of 2021.

But according to Refinitiv data, so far this year, Chinese companies have raised a total of US$5.23 billion in initial public offerings (IPOs) in the United States, more than double the US$2.46 billion in the same period last year. Dealogic’s data shows that the number of Chinese companies’ initial public offerings (IPOs) on the New York Stock Exchange and Nasdaq reached 29, compared with only 9 in the same period last year.

Chinese companies go public in the US

Without fear of the risk of delisting, why did the Chinese concept stocks go up in the US instead of decreasing?

In my opinion, these Chinese companies still choose to list in the United States in this environment this year. I believe there are multiple reasons.

The first is that the attractiveness of valuation is greater than the risk of being delisted. Do you actually want to go public in the US? The key is to see whether going public in the United States is in line with the maximization of the interests of listed companies and whether it is in line with maximizing the return of capital.

Faced with the threat of the US government’s delisting, they continue to choose to list in the US because these companies have seen the unprecedented historical favorable environment for the current US stock market listing.

In March this year, U.S. stocks rose the most in a hundred days since 1933. Although the epidemic has caused U.S. stocks to plummet since then, currently driven by the Fed’s stimulus policy and abundant liquidity, U.S. stocks are at the historical node of a big rebound. The S&P 500 Index The intraday peak rose to 3387.89 points on August 12, which is less than 6 points away from the historical high of 3,393.52 points created on February 19 this year.

The valuation of U.S. stocks is now close to the highest level in history. From the perspective of valuation and investment returns, it is currently facing a historically good opportunity to go public in the United States.

From the perspective of shell house search, you can still clearly feel the pressure of capital. Capital has always been pushing behind it. Tencent, Hillhouse, Sequoia, Fidelity, etc., capital seeks to maximize the benefits of fast in and out. In return, listing on US stocks is obviously the best choice.

U.S. stocks rose the most in a hundred days since 1933

In addition, as far as the Chinese concept stock companies currently listed in the United States are concerned, most of them have established a listing structure in the United States at an early stage, signed agreements with relevant investment banks and accounting firms, and entered the listing process early. If temporary changes are made, it means more High operating costs and longer time to market.

According to US law, Chinese companies must be registered in the US to provide underwriting and audit services by investment banks and accounting firms to list in the US. From the perspective of actual practice, the current audit services for China Concept Stocks are mainly firms registered in China such as PricewaterhouseCoopers, Deloitte, KPMG, Ernst & Young, etc., all of which are registered with the Public Company Accounting Oversight Board (PCAOB) , In line with American auditing rules.


For Chinese companies currently planning to go public in the United States, through relevant sponsors and hiring a joint audit agency outside of China, under the conditions of compliance with local regulatory agencies (SEC and PCAOB), the problem is not big.

However, in accordance with Chinese regulations and regulatory frameworks, the United States cannot directly obtain audit papers related to Chinese companies from these institutions. Instead, it needs to pass the supervisory cooperation mechanism between China and the United States, that is, to allow American accounting firms to “secondary audit”.

On August 4, the Chinese regulatory authority sent an updated proposal to PCAOB based on the latest needs and ideas of the US. The China Securities Regulatory Commission believes that the essence of Chinese laws and regulations is that the exchange of information such as audit work papers should be conducted through supervisory cooperation channels, which is a common practice in line with international practices.

At present, China and the United States have been looking for an inspection plan acceptable to all parties, and their doors are not closed tightly. Moreover, the regulations on double auditing have not yet been implemented. These companies may conduct “joint audits” in the United States, but there are still some other variables.

Of course, the release of this report is not unrelated to Ruixing’s fraud that has triggered a crisis of confidence in the Chinese concept stocks in the US capital market.

On the one hand, the new measures and reports in the United States are aimed at the quality of listed companies. After all, the impact of Ruixing’s fraud case is difficult to subside in a short period of time. In addition, it is related to the past disputes between “long-arm jurisdiction” and “cooperative supervision”, which has brought some obstacles to Chinese companies’ listing in the United States, but the overall impact is not significant.

In fact, if a new company listed in the United States does not have financial fraud or stealing privacy, it is not a high-tech company with high comprehensive strength, or an Internet platform with the potential for global expansion, and it does not threaten It is very unlikely that leading companies in the United States will be targeted by the United States as game pieces. However, the number of companies that went public in the United States this year has basically not reached that level.

From Huawei to WeChat and Tiktok in the past, these companies targeted by the United States are mostly powerful and high-quality companies. In fact, from another perspective, the targeting of the United States has further promoted the spread of their popularity and influence in the global market.

If a new company going public in the U.S. is targeted by the U.S. without financial fraud and in compliance with U.S. auditing rules, and faces the threat of delisting, then the company will also trigger international public opinion and sympathy and rise in popularity. For the U.S., It’s not cost-effective to touch porcelain tiles. At this time, if these targeted companies return to the Hong Kong stock market, they can often gain greater valuation and recognition from the capital market.

Therefore, for these companies, going public in the US is a relatively low-risk option.

It should be understood that the United States’ suppression of a company itself has actually carried a great cost, including affecting the international evaluation of its market mechanism and open spirit, as well as its attraction to foreign capital, and weakening global investors’ exposure to the US capital market. Confidence and its international status. If these companies go public on the London Stock Exchange, it will also weaken the US financial economy.

So we saw that Sohu Zhang Chaoyang said that he would not delist from the US market. The US capital market has many advantages. He hopes to “stay well” on the Nasdaq. He said that in the US stock market, if the company is good enough and can If you continue to make a profit, the P/E ratio will be relatively high. But in fact, with Sohu’s current comprehensive strength and influence, it is safe to stay in the US capital market and there will be no risks.

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There is a retreat for Hong Kong’s secondary listing

Based on the above analysis, it can be seen that the worst result is delisting on the US stock market and then returning to the Hong Kong stock market. This is actually an important reason why many companies still want to go public in the US because there is a way out, and the way out is not bad.

Just as a banker in Hong Kong pointed out, in recent years, Hong Kong has opened up Chinese technology companies to return to Hong Kong for secondary listings, which has not played a substitute role. On the contrary, it has further strengthened the sense of security for Chinese companies to go public in the United States. Although the United States has recently made many gestures that are not friendly enough to Chinese companies to go public, once the path to return to Hong Kong for a second listing is proven to be feasible and reliable, this will be the reassurance for Chinese companies to go public in the United States.

There is a back road for listing in Hong Kong. Returning to Hong Kong twice after listing in the United States can often increase valuations. Companies can be listed in the United States and listed in Hong Kong. They can absorb capital from the two markets and do two things with one stone. Why not for?

The capital behind listed companies seeks to maximize their interests. After a successful listing in the United States, it will be easier to return to Hong Kong for a second listing, eliminating a lot of basic review work and even obtaining a higher valuation.

For companies eager to go public, of course, the sooner the better. If there are extremely high requirements for speed, the US listing is more attractive. The first is that China and the United States have different standard thresholds for companies to go public. The US listing review is fast and has a low threshold.

my country’s A-shares implement an audit system with high thresholds and many requirements. Companies must meet the requirements for listing in terms of “profits” and “number of shareholders”. All listed companies must pass the qualification review of the China Securities Regulatory Commission before they can be listed.

However, the United States implements a registration system that can be listed as long as it meets the regulatory standards. Relatively speaking, the threshold is slightly lower and the requirements for profit are relatively low. The U.S. stock listing process is simple, the IPO review process is relatively time-controlled, the review speed is fast, and the threshold is low. It only takes 5-6 months from the start of the listing preparation to the completion of the listing. It is still very attractive for companies that want to catch up with the current capital market window and get listed as soon as possible.

New economy companies have higher valuations in the United States

It is not difficult to understand why this corresponds to the shell. Because from the perspective of interest, Shell hopes to go public as soon as possible. This is because the 6 billion equity of Lianjia’s early financing has been transferred to Shell to find a house and signed a gambling agreement with venture capital. If it is not listed before April 2021, 6 billion investment funds will be returned and interest will be calculated at an annual interest rate of 8%.

This pressure on gambling is forcing Shell to find a house and rush to go public. The sooner the better. Therefore, the time limit of the card-to-bet agreement can be listed faster in the United States, and it is a better choice to list in the United States under pressure.

Moreover, Shell packs the concept of a real estate e-commerce company. There is no benchmarking company in China. If you want to find a US benchmarking company, then Shell can benchmark against US MLS, but Shell’s massive real estate dictionary is surpassing US MLS. In fact, this concept is a kind of vertical e-commerce, and US stocks, especially Nasdaq, are naturally born for new economy companies. The story of Shell is easy to get a higher valuation in the United States.

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Because Shell House Search is a platform that organically integrates real estate and the Internet. From the perspective of performance, in 2019, the total GTV of Shell platform transactions was 21 trillion, and the number of housing transactions was 2.2 million. This is a very good result, 2.12 trillion. With the total transaction volume, it has become China’s second largest commercial platform after Ali.

The total transaction volume is second only to Ali. This is a story that the US capital market likes to hear. Facts have also been confirmed. Shells chose to go to the US for listing, and the stock price soared by nearly 90% on the day of listing.

Because U.S. stocks relatively favor e-commerce new economy companies, and are more tolerant of profitability and return cycles, this is related to the fact that Amazon is the target in the United States, and Amazon has not achieved profitability within 20 years after its establishment. Internet e-commerce companies can obtain very high valuations in US stocks, from Ali to Pinduoduo to JD.com.

This is also the reason why many companies choose to continue to go to the US capital market at the same time that many companies are privatized and returned to China.

Similar to Shell Search, these companies may not meet the requirements of domestic listing and obtain high valuations, whether they are industry, main business or profit performance. The selection of US stocks is also based on valuation considerations and interest-driven.

Large financing needs

Financing demand is also one of the important reasons. After Internet companies and technology companies go public, they will inevitably burn money due to the pressure of large-scale effects, and the demand for financing is very large. From the perspective of shell house search, it has invested a lot of money in the new house business, and the uncertainty in the capital chain will increase in the future.

From the perspective of an ideal car, although it holds 1 billion yuan and backs to Meituan, in the automotive industry, especially the new energy vehicle industry, this amount of money is actually a drop in the money. Tesla’s R&D expenditure in the second quarter of 2019 reached 386 million. US dollars. Weilai’s R&D expenditure in 2018 also exceeded 4 billion yuan.

In China, the financing environment of the primary market is relatively severe, and all the new domestic car-making forces are currently in the money-burning stage and lack the ability of self-hematopoiesis. The core of the competition in the second half is the competitive capital purse.

After all, the United States is still the world’s largest financial market, and its financing environment is relatively better, which will bring a more diverse investor base. It can also increase global visibility and influence. New car forces are hopeless to make profits in a short period of time. In order to maintain financing needs, going public is the last resort to solve the financing needs. Compared with China, going public in the United States is easier.

In the past, going public in the United States used to be the dream of Chinese Internet companies, because going public in the United States meant to be more international, more capable, and closer to globalization. However, judging from the current situation, in addition to the two types of Chinese-funded companies that are most affected by the new US regulatory regulations, such as state-owned enterprises and technology companies, it is still an important way for ordinary companies to go public in the United States, and the capital vitality of the US stock market is still attractive. force.

Moreover, the more you choose to go to the U.S. to go public against the trend at this time, the more you will be recognized by the capital market. Because you go against the trend, you are not afraid of the risk of delisting. In fact, it also proves to the capital market that your company has no financial problems. High-quality investment targets are also a strategic means to obtain high valuations and financing.