Headwinds Mount for Chinese Firms Seeking U.S. IPOs

(Bloomberg) --

Chinese companies looking to do initial public offerings in the U.S. face mounting headwinds.

On Thursday, President Donald Trump said he was looking at firms from the Asian nation that are listed on American exchanges but do not follow U.S. accounting rules. That came in the wake of the spectacular downfall of Luckin Coffee Inc., once a poster child for Chinese startups, which saw its stock nosedive in April after it revealed an internal investigation into an accounting fraud. The Securities and Exchange Commission later issued a statement cautioning investors about emerging-market companies listed in the U.S., particularly Chinese ones, and the quality of their financial reporting.

Luckin Coffee’s fall from grace means one of the few high-profile and successful listings by a Chinese firm in the U.S. last year is now a headache for the banks involved and a cautionary tale for investors. Chinese companies that went public in the U.S. in 2019 have fallen by an average 23%, weighted by deal size, and only six of the 33 are above water, according to data compiled by Bloomberg. Many large international banks had already started walking away from smaller Chinese deals as they grew concerned about reputational risks.

Adding to the negative sentiment, the board overseeing a retirement-savings plan for federal workers is deferring a move to an index with Chinese stocks following pressure from the White House and some lawmakers in Congress.

All this comes amid a deterioration in U.S.-China relations as the two countries exchange barbs over the origins of the coronavirus pandemic, which has killed more than 300,000 globally, and as tensions resurface on everything from trade to visas and Taiwan.

After a bumper year for U.S. IPOs by Chinese companies in 2018, with $9.12 billion raised -- the most since 2014, the year e-commerce giant Alibaba Group Holdings Ltd. went public there -- the value of such listings plunged in 2019 to just $3.68 billion as deal sizes were cut amid waning investor demand. In 2020, 12 Chinese companies have gone public on American exchanges, and only two have risen from their offer prices, hardly a stellar performance.

There are some greenshoots, though. The latest company to go public in the U.S., Chinese cloud-computing company Kingsoft Cloud Holdings Ltd., raised $510 million in what is the largest such deal of the year and has climbed 32% from its IPO price of $17. In a sign of strong investor demand, it increased the sale by 5 million American depositary shares.

Another Chinese company has also lined up for what could be a sizeable deal: Dada Nexus Ltd., an operator of crowd-sourced delivery platforms backed by JD.com Inc. That IPO could raise about $500 million, people familiar with the matter have said.

UPCOMING LISTINGS:

• Dada Nexus Ltd.
  • Nasdaq exchange
  • Size about $500m
  • Filed May 12
  • Goldman Sachs, Bank of America, Jefferies
• Legend Biotech Corp.
  • Nasdaq exchange
  • Filed May 13
  • Morgan Stanley, JPMorgan, Jefferies
• Yeahka Ltd.
  • Hong Kong stock exchange
  • Pre-marketing from May 11
  • CLSA, Nomura, ABC International
• Kintor Pharmaceutical Ltd.
  • Hong Kong stock exchange
  • Size up to $240m
  • Pricing May 15, listing May 22
  • Huatai, UBS, CICC
• Ebang International Holdings Inc.
  • New York
  • Size $100m
  • Filed April 25
  • AMTD, Loop Capital Markets

More ECM situations we are following:

• A Chinese medical-devices provider surged 74% in its Hong Kong trading debut on Friday in the best opening performance this year for an initial public offering over $50 million.

See also:

• Asia ECM Weekly Agenda
• IPO data
• U.S. ECM Watch
• EU ECM Watch
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