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By Yashasvini Razdan, 3:58 PM ET
Days after China launched a cyber-security probe into the ride-hailing firm Didi, which launched its IPO in the U.S. last month, China Securities Regulatory Commission (CSRC) is setting up a team to review plans by Chinese companies for overseas initial public offerings (IPOs).
Reuters reported that those who intend to set up IPOs will need the ministry’s approval before launching an IPO in foreign markets using the VIE structure.
Through this process, China’s companies can set up an offshore company that can be listed in overseas markets. The offshore company makes a deal with the local Chinese company’s owner, to obtain 100% economic interest in that business. This method has been utilized by mostly internet firms that set up bases outside China's legal jurisdiction, allowing them to raise capital offshore.
Meanwhile, the Cyberspace Administration of China is leading the move to regulate Chinese companies listed in the U.S and tighten rules for future foreign listings. Beijing believes that this move is imperative to curtail illegal activities in the securities market and punish fraudulent securities issuance, market manipulation and insider trading, reported Wall Street Journal.
Experts believe that these new measures will delay the listing process and add hindrances for companies intending to raise capital.
Reuters reported that Beijing’s clampdown has already deterred Chinese medical data group LinkDoc Technology Ltd from launching its IPO in the U.S. This year, in May, reports surfaced that the Chinese government was pressuring audio platform Ximalya to list itself on Hong Kong’s market rather than the U.S. market.
U.S. capital markets have helped 34 Chinese companies raise a record $12.5 billion this year and have continued to be an excellent source of funding for technology companies looking to tap into the liquidity pool.
Taking stock of the situation, the world’s third-largest smartphone maker, Xiaomi, plans to raise $1.2 billion via debt issuance. In January, Xiaomi was designated as a “Communist Chinese military company” by the Trump administration preventing Americans from holding the company’s stock, which was later blocked by a judge in March.
The smartphone maker announced its plans to launch its own electric car business and invest $10 billion over the next 10 years, that very month.
The company now intends to issue $800 million worth of bonds due in 2031 with a coupon of 2.875% per year, utilizing the proceeds for “general corporate purposes.” It will also issue $400 million of green bonds with a 4.1% coupon per year. Their proceeds will fund eligible projects under its Green Finance Framework.
A CNBC report hints that the current fundraising exercise might be an initiative to fulfill its 10-year plans.
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