Chinese firms are racing to go public in the United States’ red-hot IPO business — before it cools. According to the consultancy company EY, the first three months of the year were the busiest for total U.S. initial public offerings since 2000. Despite the coronavirus pandemic and disputes between the US and China, EY estimated that corporations headquartered in Greater China accounted for half of the 36 foreign public listings in the US during that time span.
More are on the way
According to Vera Yang, chief China delegate for the New York Stock Exchange, about 60 Chinese firms are expected to go public in the United States this year. “From our interactions with businesses, we get the impression that they want to list as soon as possible,” Yang said in a Mandarin-language interview translated by CNBC. She cited risks such as the pandemic, as well as a possible tightening of monetary policy in the long run, which would limit resource supply.
According to Renaissance Finance, money has slowly flooded the market since the pandemic, helping 30 Chinese-based firms to gain the most capital in the U.S. IPOs since 2014. This year, the Standard&Poor 500 reached new highs, while the US Federal Reserve Chairman Jerome Powell indicated that monetary policy would stay loose in the medium term. Investors and businesses are trying to cash in on Chinese start-ups. They are now considering laws introduced during the Trump presidency that will require the U.S. markets to delist international firms, that fail to comply with three years of the U.S. audits.
Concerns over delisting have subsided since President Joe Biden took office in January, and market participants anticipate a solution, according to Blueshirt managing director Gary Dvorchak, who advises Chinese companies involved in listing in the United States. The Chinese IPO pipeline is a “tidal wave,” he said. “Our phone is always ringing. We’re seeking to increase the size of our employees.’’ “This is unlike anything we’ve seen since the Nasdaq bubble of 1999,” he added. “It frightens me.”
The wealthy became much wealthier
In the late 1990s, a wave of interest in emerging media firms spanning from Pets.com to Cisco fueled, a U.S. stock market boom that started to collapse in 2000, dubbed the “dotcom bubble. The trend is continuing in China, which is host to many of the world’s so-called unicorns — start-ups worth $1 billion or more. According to Hongye Wang, a China-based partner at venture capital company Antler, more people are asking him for stakes in unicorns than in earlier-stage start-ups.
Take, for example, famous Chinese soda water firm Genki Forest, which officially received a $500 million capital infusion earlier this month, taking its value to $6 billion. According to Crunchbase, one of the largest yuan funding rounds that week was a much smaller 600 million yuan ($92.3 million) series B injection into Abogen Biosciences. Many Chinese stocks listed in the United States and Hong Kong have plummeted since their initial public offerings this year, indicating that certain valuations might be too high.
In February, for example, the Chinese short-video app Kuaishou soared 160 percent to $300 per share in the largest internet business IPO since Uber, and the largest Hong Kong launch since the pandemic. However, the price has failed to capitalise on those sales. “The after-IPO pricing pattern is not as good as it was last year,” said Ringo Choi, EY’s Asia-Pacific IPO boss. He anticipates a downturn in public offerings starting in the third quarter of this year, especially if the macroeconomic environment deteriorates.
For the time being, a number of China’s biggest start-ups are already in the process of going public, but the timeline is uncertain. According to CB Insights, the largest unicorn in the world is Beijing-based ByteDance, owner of popular short-video app TikTok, while Chinese ride-hailing firm Didi Chuxing ranks fourth. Investors are “supportive, but more selective” in Chinese firms, that can bear high valuations, according to Yang, citing conversations with different investment funds. She mentioned that the first area of concern for Chinese-based businesses listing in the United States this year, are the categories known as technology, media, and telecommunications. According to Yang, this is accompanied by household brands and corporate providers.
