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    388   HK0388045442

HONG KONG EXCHANGES AND CLEARING LIMITED

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Chinese firms with offshore structure to need approval for Hong Kong IPOs -sources

09/10/2021 | 03:53am EDT
FILE PHOTO: China Securities Regulatory Commission (CSRC) building in Beijing

HONG KONG (Reuters) - China's securities regulator is looking to expand its scrutiny of overseas listings by offshore incorporated companies to include initial public offerings (IPO) in Hong Kong, five people with knowledge of the matter said.

The China Securities Regulatory Commission (CSRC) has already been setting up a team https://www.reuters.com/world/china/china-targets-offshore-ipo-structure-require-ministry-approval-sources-2021-07-08 to focus on companies seeking to list offshore using the so-called variable interest entity (VIE) corporate structure which Beijing says has led to abuse.

But some market participants had not expected the scrutiny to be extended to such firms seeking to list in the Chinese territory of Hong Kong - a preferred venue for companies in the world's second-largest economy to raise capital offshore.

However, under the new rules being drafted, CSRC will not exclude Hong Kong-bound Chinese companies with a VIE structure from seeking approval, the people told Reuters on condition of anonymity given the sensitivity of the change.

The move would not augur well for the Asian financial hub as it may make it more challenging for Chinese firms looking for a venue closer to home amid tighter checks in the United States - another top destination for offshore floats.

The proposed changes are part of China's months-long crackdown https://www.reuters.com/world/china/education-bitcoin-chinas-season-regulatory-crackdown-2021-07-27 on private firms to rein in "disorderly expansion of capital" that has involved behemoths like Alibaba, Ant Group and ride-hailing giant Didi.

There is no timeline for the unveiling of the new guidelines, the sources added.

CSRC did not respond to a request for comment, while Hong Kong Exchanges and Clearing Ltd (HKEX), the operator of the local bourse, and the markets regulator Securities and Futures Commission declined to comment.

VIE STRUCTURE

The VIE structure was created two decades ago to circumvent rules restricting foreign investment in sensitive industries such as media and telecommunications, enabling Chinese companies to raise funds overseas via offshore listings.

It has been widely adopted by China's new economy companies, mainly internet firms, that are generally incorporated in the Cayman Islands and British Virgin Islands and therefore fall outside Beijing's legal jurisdiction.

Under the existing rules, Chinese companies with a VIE structure do not have to seek formal regulatory approvals for IPOs in the United States or in Hong Kong, and can bypass the scrutiny and lengthy IPO vetting process that locally-incorporated companies have to go through.

There have been $35.3 billion worth of IPOs in Hong Kong in 2021, of which Chinese companies accounted for 96.3%, according to Refinitiv data. The value of deals is up from $22.76 billion from a year earlier, the data showed.

Separately, HKEX has also increased scrutiny of Chinese IPO candidates that now face more queries on potential regulatory issues, said two of the sources, who advise some of those companies.

(Reporting by Julie Zhu, Kane Wu and Scott Murdoch in Hong Kong and Zhang Yan in Shanghai, additional reporting by Cheng Leng in Beijing; Editing by Sumeet Chatterjee and Himani Sarkar)


© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED 0.73% 168 Delayed Quote.-27.81%
DIDI GLOBAL INC. -0.12% 8.26 Delayed Quote.0.00%
HONG KONG EXCHANGES AND CLEARING LIMITED 1.47% 469 End-of-day quote.10.35%
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Financials
Sales 2021 22 352 M 2 873 M 2 873 M
Net income 2021 13 788 M 1 772 M 1 772 M
Net cash 2021 64 337 M 8 269 M 8 269 M
P/E ratio 2021 43,1x
Yield 2021 2,06%
Capitalization 593 B 76 284 M 76 267 M
EV / Sales 2021 23,7x
EV / Sales 2022 20,2x
Nbr of Employees 2 204
Free-Float 94,0%
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Number of Analysts 27
Last Close Price 469,00 HKD
Average target price 551,80 HKD
Spread / Average Target 17,7%
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Alejandro Nicolas Aguzin Chief Executive Officer & Director
Romnesh Lamba Co-President
Chi Kin Tai Co-President, COO & Executive Director
Bik Yun Lau Group Chief Financial Officer
May Lung Cha Non-Executive Chairman
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