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Three prominent mainland China-based companies, led by Beijing Fourth Paradigm, a cutting-edge artificial intelligence (AI) software firm, have debuted on the Hong Kong Stock Exchange with initial public offerings (IPOs). Collectively, the companies plan to raise up to $280 million through the IPOs.
Fourth Paradigm completed the necessary procedures for its IPO on the Hong Kong Stock Exchange back in July and received the official green light from the China Securities Regulatory Commission (CSRC) to conduct the offerings after three previous failures. The approval comes after the financial regulator implemented fresh rules to enable offshore listings.
A few months after obtaining the regulatory approval, the company now leads two other Chinese firms to seek funding through traditional IPOs.
In this IPO, three cornerstone investors, led by New China Capital Management, have shown strong interest, subscribing for approximately $96.8 million worth of stock, accounting for roughly 70.6 percent of the total offering.
According to a Monday filing, Fourth Paradigm plans to secure up to $144 million by issuing 18.4 million shares at a price range of HK$55.60 to HK$61.16 each.
Launched in September 2014, Fourth Paradigm boasts various product offerings across different industries, including finance, retail, manufacturing, healthcare, energy, and telecommunications.
In 2021, the company completed its series D funding round, which saw participation from prominent financial companies such as Sequoia Capital, Goldman Sachs, China-UAE Joint Investment Fund, Mubadala Investment Company, and CDB Capital. These heavyweight investors contributed up to $700 million for the company.
Two years after the Series D fundraising, the company found itself in the U.S. “Entity List,” which imposed restrictions on U.S. suppliers from shipping technology to the company unless they could secure a license from the country’s Commerce Department.
In addition to Fourth Paradigm, another Chinese firm, Neusoft Xikang, a prominent cloud hospital platform, is targeting an IPO to raise between $81 million and $101 million by selling 133.8 million shares. The shares are priced in a range of HK$4.76 to HK$5.91 each.
Similarly, the third company in the IPO, ZX Inc, a mobile games operator, is offering 18.97 million shares priced between HK$11 to HK$14 each, intending to secure between $27 million and $34 million in funding.
The two companies aim to raise approximately $135 million in the IPO, bringing it to a total of $280 million with the planned $144 million raise by Fourth Paradigm.
These IPOs align with the broader trend of Chinese companies seeking public listings in Hong Kong, driven by regulatory scrutiny and market dynamics. Chinese firms are increasingly looking to tap into Hong Kong’s vibrant capital markets to fund their growth and expansion plans.
Meanwhile, these offerings mark an exciting chapter in the growth of the three Chinese companies and their foray into the international financial landscape. Investors and industry observers will closely watch their performance in the coming months as they navigate the dynamic IPO landscape in Hong Kong.
Chimamanda is a crypto enthusiast and experienced writer focusing on the dynamic world of cryptocurrencies. She joined the industry in 2019 and has since developed an interest in the emerging economy. She combines her passion for blockchain technology with her love for travel and food, bringing a fresh and engaging perspective to her work.
Over time, multiple Chinese agencies have consistently provided new rules to guide and protect national security and personal data.
The China Securities Regulatory Commission (CSRC) has announced rules for local companies filing Initial Public Offerings (IPOs) overseas. The new rules give domestic companies more clarity on if they can list outside their home country. According to the CSRC, the laws binding the filing of overseas IPOs will become effective for all companies in China from March 31.
Announcing the new regulations, the Commission explained that companies must observe the national security measures and personal data protection law before going public outside the country. Also, IPO underwriters are required to report their relationships with overseas Chinese IPOs to the China Securities Regulatory Commission. Anyone, whether individual or company, that violates the new instructions could pay up to a 10 million yuan fine, which equals $1.5 million. The same penalty applies to individuals and companies that share misleading information.
The new law the securities regulator passed does not affect variable interest entity (VIE) structure which is common with Chinese companies filing for public listings in the US. This VIE structure allows companies to list via a shell company, typically in the Cayman Islands.
Over time, multiple Chinese agencies have consistently provided new rules to guide and protect national security and personal data. China’s cybersecurity regulator had earlier said that internet platform operations in China with personal data of over a million users are required to apply for cybersecurity review in their home country before filing IPOs overseas. This came after Didi went live on the New York Stock Exchange (NYSE) in June 2021. The Cyberspace Administration of China (CAC) said the transport company violated data security laws, resulting in a fine of 8.026 billion ($1.19 billion). The CAC specified that Didi breached the country’s data security law, personal information protection law, and network security law. In addition, the Chinese authorities ordered the country’s app stores to delist Didi in July 2021.
After 18 months of suspension, Didi announced in January that it would relaunch its app. While its services were paused, the company said it “seriously” cooperated with the national network security review. It added that it was resuming upon receiving greenlight from the Network Security Review Office.
More companies in China have also resumed overseas IPOs since the year began. Henceforth, Chinese companies that comply with the new rules would not be exposed to the risk of delisting or other related consequences. US inspectors also said in 2022 that they had reviewed the audit work papers of Chinese companies that filed for overseas IPOs.
Ibukun is a crypto/finance writer interested in passing relevant information, using non-complex words to reach all kinds of audience.
Apart from writing, she likes to see movies, cook, and explore restaurants in the city of Lagos, where she resides.
Hesai Group, QuantaSing, and Structure Therapeutics are some Chinese IPOs to see a recent US listing, but they might not be the last.
According to a CNBC report, Chinese initial public offerings (IPOs) are making a return to the US stock market. Several Chinese startups seek substantial capital in US listings again following a sustained dry spell. The development of more regulatory clarity regarding US stock market listings is also contributing to the resurgence of Chinese IPOs.
One Chinese company recently listed in America is the automobile tech-driven platform Hesai Group. The firm saw its shares climb approximately 11% after its debut on the Nasdaq Thursday.
Hesai Group exceeded its IPO target by raising $190 million, one of the most prominent since Didi’s $4.4 billion efforts in June 2021. However, at the time, the Chinese ride-hailing giant’s US IPO contravened Chinese regulations that also sparked a cybersecurity review into Didi. The Beijing-based company ended up delisting later that same year in December.
Online adult education company QuantaSing is one of the Chinese companies to list in the US following eligibility reviews. The company’s IPO, which raised $40.6 million, was underwritten by leading investment banks such as Citigroup (NYSE: C), CICC, and CLSA. Furthermore, QuantaSing also enjoyed the backing of investment firms such as Prospect Avenue Capital and Qiming Venture Partners.
Additionally, QuantaSing supported two other China-based companies that issued ADRs this year, namely Hesai and the biotech platform Structure Therapeutics.
In their respective prospectus, Hesai, QuantaSing, and Structure Therapeutics all specified associated levels of US and Chinese regulatory risks. According to Hesai, China’s cybersecurity regulator informed the company that a cyber review is unnecessary if it doesn’t have the personal information of over 1 million users. QuantaSing claimed it had that information and subsequently completed a cybersecurity review last August. Furthermore, Structure Therapeutics allegedly did not receive any notice from Chinese regulators regarding a cybersecurity review.
The cybersecurity review is the most notable among a set of new rules by Chinese authorities regarding overseas listings by local internet platform operators. Meanwhile, in the US, the Public Company Accounting Oversight Board (PCAOB) agreed last year to inspect the audit work papers of US-listed Chinese firms. The PCAOB reached this agreement with China’s securities regulator and finance ministry, also explaining that it secured “complete access.” This development negates the near-term threat that Chinese companies may face to delist from US bourses.
The US-Chinese regulatory developments have opened the floodgates to Chinese listings on US stock exchanges. As several more Chinese firms pursue US listings, Marcum Asia CPAs LLP co-chairman Drew Bernstein weighed in on the positive outlook. According to Bernstein, his company is working with around 50, primarily Chinese-based, companies to list in America. Furthermore, Bernstein also described such company endeavors as “probably the strongest pipeline our firm has had in its history.”
However, despite the perceived eagerness from East Asia, he noted that it might be a while before many IPOs return to the market. According to him, it still proves difficult for people to obtain visas to travel to and from China.
Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
When he’s not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.