Wall Street banks rush to salvage China IPO pipeline after Didi shock

Investment banks around the world are competing to direct an initial public offering by a Chinese group to Hong Kong after a new cybersecurity rule from Beijing suspends a favorable tech list that was previously heading to New York.

Approximately 20 Chinese companies have announced plans to raise $ 1.4 billion from a stake in New York later this year, according to Dealogic data. But that was before Beijing regulators began investigating Didi, sending shares a few days after the $ 4.4 billion levitation of the Chinese ride-hailing service group in New York. 20% reduction From its IPO price.

The intervention also questioned the US list and began scrambling to redirect transactions. Advising Chinese companies about IPOs is a lucrative business for banks such as Goldman Sachs and Morgan Stanley, which generated $ 460 million in commission income from this work in the first half of this year.

“We’re telling everyone about it. All Chinese issuers planning an IPO in New York are considering whether they can pivot to Hong Kong,” said Hong Kong’s senior capital markets banker. I am.

He said strict listing rules in Hong Kong, including minimum profitability requirements, meant that many companies would struggle. “If you want to trade this year, it will be postponed until 2022 at best, and in the worst case you won’t be able to do that,” he added.

Earlier this year, 34 Chinese companies raised $ 12.4 billion in a New York IPO. This was a record high in both respects and helped support US bank commission income, even if tensions between the US and China worsened. Over $ 2 trillion in stock is already trading in New York.

According to bankers and lawyers, Hong Kong offers a good alternative as it means Beijing’s control over the financial hub is less susceptible to the new rules on foreign listings that have hit the sale of shares in New York. Seems to be there.

The data security issue brought to the fore by the impact of Didi is at the heart of China’s crackdown. A few days after that unlucky IPO, Beijing’s China Cyberspace Administration (CAC) said Cyber ​​security review To the company.

Beijing officials then called for a new regulatory system to crack down on IPOs abroad, and CAC proposed a rule banning more than one million users from listing abroad without security reviews and official permission. Did.

Two bankers on Wall Street in Hong Kong said companies with large data components in their businesses were one of the fastest to switch plans to Hong Kong and swallow the associated delays and costs. It was. “In the absence of a data angle, they wait until things look calm. The problem is that no one wants to be the first,” said one banker.

The public Chinese tech group, thanks to a deeper, more fluid market and ease of listing, compared to Hong Kong, where companies are being scrutinized by both the city’s securities regulators and the stock exchange. I have been a supporter of New York for a long time. Bankers also enjoy higher fees of 5-7% on funds raised through the sale of US shares, compared to about 2% in Hong Kong.

Bruce Pan, head of investment banking China Renaissance, said China’s listing in New York would suffer until details of the new regulatory system were set out among perhaps a dozen Chinese regulators. It was. Get approval.

A bar graph of investment banking earnings in the first half from a Chinese IPO in New York ($ m) shows that the Chinese list provided record rates for Wall Street banks.

Mr Pan added that more and more Chinese companies are facing an urgent need for disclosure. “If they can’t wait, Hong Kong will be their only choice,” he said.

So far, the biggest beneficiary of the new rule is the Hong Kong Stock Exchange, whose share has skyrocketed 14 percent this month.

The Hong Kong Stock Exchange has appointed the first non-Chinese CEO of the year, Nicholas Agdin, a former JP Morgan banker born in Argentina.

Aguzin retains HKEX’s appeal to mainland Chinese issuers, which account for more than 80% of its stake, while being more attractive to foreign issuers, who have almost disappeared due to a series of luxury goods such as Prada and Samsonite. Take on the task of making things. Listed 10 years ago.

However, one senior executive at the HKEX said the exchange may benefit from the diversion IPO in the short term, but “it’s not going well.”

“At the moment we are screwing the issuer, but the next logical step is to screw the investor,” said an executive. “I predict that governments and regulators will make the flow of capital difficult.”

Wall Street banks rush to salvage China IPO pipeline after Didi shock Source link Wall Street banks rush to salvage China IPO pipeline after Didi shock

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