Chinese companies are staring at the prospects of a drought of new equity capital as tougher domestic IPO rules and challenges in listing overseas severely curb their fundraisings, putting at risk the floundering economy's recovery.
China's securities watchdog has sharply tightened scrutiny of IPOs this year, leading to companies scrapping domestic listing plans in droves, with some turning to offshore markets such as Hong Kong and New York.
However, sharper scrutiny of IPO hopefuls in the U.S. amid geopolitical tensions and a weaker Hong Kong market will stymie offshore listings for many, highlighted by Alibaba's move this week to ditch the Hong Kong IPO plan of its logistics unit.
During January-March 2024, money raised via China IPOs plunged 82% from a year ago to just $2.4 billion, the smallest quarterly fundraising since the fourth quarter of 2018, preliminary LSEG data showed.
The sudden freeze of an IPO market that was the world's biggest in 2023 and 2022 comes after the securities watchdog, under new chairman Wu Qing, vowed to step up scrutiny of listing candidates and crack down on any lapses.
The IPO tightening "would make it increasingly difficult for small companies to raise capital" and for private equity investment to exit, said Andrew Qian, CEO of Shanghai-based investment and advisory firm New Access Capital.
"IPOs in China will become scarce resources," said Qian, who is now helping some companies list on Nasdaq instead.
For venture capitalists, the difficulty to exit will, in turn, lead to difficulty in fundraising, and "it would be increasingly challenging to invest in early-stage, small, hi-tech companies", said Qian.
These are the kinds of companies that are the crucial drivers of economic growth and employment in China.
The sharp plunge in IPOs comes against the backdrop of a stock market rout at the beginning of the year after mainland shares lagged global stocks for three years, and deflation at levels unseen since the global financial crisis of 2008-09.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.