Chinese IPOs to be hit by Nasdaq’s latest rules
Latest deterioration in US-China trading relations
Nasdaq Inc is expected to announce new regulations on initial public offerings (IPOs), which would limit the ability of Chinese companies to list on its stock exchange.
It is not thought that the US financial services corporation will cite Chinese firms specifically. The move comes after a week of worsening rhetoric between Washington and Beijing. The Covid-19 crisis has severely damaged any goodwill generated by the signing of a phase-one trade deal in January.
The new rules are likely to require companies from some countries, including China, to raise at least a quarter of their post-listing market capitalisation, or $25 million, in their IPO. This would be the first time Nasdaq has put a minimum value on the size of listings on its exchange.
According to Refinitiv, 40 of the 155 Chinese companies that listed on the Nasdaq since 2000 have grossed profits of less than $25m.
Last Friday the US Commerce Department signalled its intention to “cut off” the Chinese tech giant Huawei’s "efforts to undermine US export controls” and vowed to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain US software and technology”.
Reports emerged on Monday that Taiwan Semiconductor Manufacturing Company, the largest contract chipmaker in the world, had stopped taking any new orders from Huawei.
While the Nasdaq’s decision comes within an immediate context of souring trading relations, Chinese IPOs on American exchanges have been a long-standing concern for some in the US. Nasdaq Inc already introduced stricter measures in 2019, driven by these worries.
The lack of accounting transparency and close ties that some Chinese firms have to China’s ruling Communist Party have particularly provoked anxiety. The case of Luckin Coffee has only strengthened such apprehension.
The Chinese coffee chain had its IPO on the Nasdaq in early 2019, having only been founded 18 months previously. Following external pressure and analysis, Luckin Coffee was forced to announce after an internal investigation that its COO had fabricated the company's 2019 sales by around $310m.
The Nasdaq has been able to weather the Covid-19 storm, up 2.92 per cent on the year to date.
FURTHER READING: Largest contract chipmaker in the world halts deliveries to Huawei