Chinese US registrations fail despite fundraising frenzy

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More than two-thirds of Chinese groups listed in the United States this year have fallen below their initial public offering price, despite record levels of fundraising, as growing regulatory oversight has affected investor sentiment.

The poor share price performance comes after 34 Chinese companies raised $ 12.4 billion in New York floats in the first half of 2021, data from research provider Dealogic showed, a record high of both. plans. This compares to 18 announcements that raised $ 2.8 billion in the same period last year.

The surge generated a record first-half windfall for Wall Street, with investment banks such as Goldman Sachs and Morgan Stanley generating nearly $ 460 million in fees, according to Dealogic.

But about 70 percent of those Chinese companies are trading below their IPO price, in part because of the effect of growing regulatory headwinds from Beijing and Washington.

These include RLX Technology, China’s largest manufacturer of electronic cigarettes, which raised $ 1.4 billion in January. Its shares fell 71% after the country released draft regulations classifying e-cigarettes as tobacco products in March.

Didi Chuxing, the ridesharing group that became the largest Chinese company to be listed in the United States this year after raising $ 4.4 billion in New York City last week, has also been hit by a regulatory review.

Its shares fell sharply on Friday after China’s cybersecurity regulator announced that Didi was under investigation. However, Didi’s stock is still above its IPO price.

The company was the largest Chinese float in the United States since Jack Ma’s e-commerce group Alibaba raised $ 25 billion in 2014, despite Didi reducing its original fundraising target by 7. billions of dollars.

“There are regulatory issues for specific industries and a pervasive regulatory issue, so to get a multibillion dollar deal now you have to make it cheap to attract long-term global investors,” one manager said. Hong Kong-based fund that has invested in Chinese transactions in the United States.

Full Truck Alliance, which provides Uber-like services to China’s trucking industry, raised $ 1.6 billion on the New York Stock Exchange last month, but its shares have also fallen below its price of Initial Public Offering.

Small Chinese transactions also performed poorly. MissFresh, a Chinese grocery delivery app backed by internet group Tencent, is trading 34% below its issue price after its IPO in June. DingDong, backed by SoftBank, cut its IPO target by more than 70% before listing. Its shares closed flat on the first day of trading, although they have since risen around 20%.

Raj Ganguly, partner at venture capital firm B Capital Group, which invests in the US and China, said: “For a lot of investors. . . they would rather invest in US tech companies or just the best and biggest Chinese tech companies. ”

Line chart of stock index performance rebased to 100 showing Chinese stocks excluded from global tech rebound

Chinese companies are facing crackdowns from Beijing and Washington.

The targeting by the first of the tech monopolies, which included a record fine of $ 2.8 billion on Alibaba, hit Chinese stocks listed in the United States. The Nasdaq Golden Dragon China Index, which tracks Chinese technology stocks listed in New York, is down 8%, compared to a 13% increase for the US-focused Nasdaq Composite.

In the United States, Chinese companies are at risk of being delisted if they fail to comply with audit disclosure requirements. While the in-depth review led to a spate of secondary registrations by such groups in Hong Kong, it did not dampen the rush for registrations in the United States.

“The records [in fundraising] have much more to do with the appetite of Chinese issuers than of American investors, ”said the prime services manager of a European bank in Hong Kong.

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