Big Tech Listings in China Loom After Final Rules Released

(Bloomberg) -- China published final rules of a trial program for securities that would allow companies such as Alibaba Group Holding Ltd. to list on domestic exchanges, a major step in the country’s push to bring some of the world’s biggest technology firms back home.

The China Securities Regulatory Commission unveiled the details on its website late Wednesday. The regulations are broadly in line with published draft proposals. The State Council, China’s equivalent of a national cabinet, announced the China depositary receipts trial program in March.

The rapid development of a framework for CDRs highlights policy makers’ determination to find a way to have the likes of Alibaba and Baidu Inc. list in China. Most of the country’s tech giants have gone public in New York or Hong Kong to better access international capital, leaving the local market reliant on state-run industries. First mooted in February, CDRs are now available for trial in the world’s second-biggest market.

The final rules came faster than expected and demonstrated the regulators’ support of the business, Huatai Securities Co. analysts led by Shen Juan wrote in a note Thursday. Most of the pilot companies’ CDR issuance could be completed by year end, they wrote.

Stock exchanges in Shanghai and Shenzhen will conduct broker tests for CDRs in the next two weeks, according to the official Shanghai Securities News. The publication cited unnamed sources saying the first CDRs are expected to start trading as soon as July.

Tech Lure

The government’s push led to a deluge of founders and chief executives pledging to bring their companies home once the laws were clearer.

Since the idea of CDRs was floated during the tightly-scripted ‘Two Sessions’ meeting of political bodies in Beijing in March, Alibaba, JD.com Inc., Tencent Holdings Ltd., Xiaomi Corp., and China’s two biggest search giants, Baidu and Sogou Inc., have expressed a wish to list on exchanges in the country.

Gaming giant NetEase Inc., the Craigslist-like classifieds service 58.com Inc. and the world’s second-largest online travel agent Ctrip.com International Ltd. have also voiced an interest. China’s Twitter-like social messaging service Weibo Corp. and Sunny Optical Technology Group Co. are both reportedly considering the move.

The effort has spread beyond public firms. The founders of at least two Chinese startups with valuations of more $1 billion have said in interviews with Bloomberg News that they were asked by regulators to consider listing in China.

Additional Requirements

Companies that went public overseas and have a market value of more than 200 billion yuan ($32 billion) can apply for CDRs, and corporate structures that are not permitted in China will be allowed. Funds raised with the listings can be moved offshore, according to the CSRC.

Wednesday’s rules added further requirements, including that companies must have generally accepted accounting standards and healthy inner control measures, and that directors and senior executives must have good reputations and no significant legal blemishes. The regulator said it will strictly control the number of companies and amounts raised in the CDR trial, and said it “hopes” that the market won’t engage in speculation.

The CSRC also published revisions to related rules governing initial public offerings. The changes exempt unprofitable pilot companies from a clause that suspends the sponsor’s license for three months if a firm reports a loss for the year it went public.

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