Chinese internet platform companies with more than one million users will have to get government approval before listing overseas, following the country’s Cyberspace Administration’s (CAC) issuing of new rules earlier this month.
To stay public beyond the U.S., if regulation here forces companies to delist from New York, companies with access to the personal data of their users will be subject to Beijing’s inspection as they try to raise money in public markets elsewhere.
Recently, U.S. audit requirements have become stricter, increasing the likelihood that companies will delist in the coming years. The new rules do not affect companies that have already gone public but do include those pursuing dual or secondary listings overseas.
International investors in Chinese companies are faced with new uncertainty as the rules take effect.
Some Chinese companies have looked to Hong Kong for dual or secondary listings, but not all would be eligible. Just 80 out of 250 U.S.-listed companies meet Hong Kong’s rigorous requirements for minimum market capitalization, among other criteria, according to China Renaissance research. The Hong Kong market does not have New York’s trading volume, lowering the price that tech companies could get for their shares. To be approved without CAC’s go-ahead, companies would have to show that there is no national or network security risk associated with a company’s products or data processing.
Outside of Hong Kong, in markets such as London or Singapore, CAC approval would be necessary, according to Marcia Ellis, the global chair of the private equity group at Morrison & Foerster, Hong Kong, as reported on CNBC.
The option for the remaining companies would be to privatize and attempt a listing in the mainland’s A share market.