Chinese listings in US flop despite fundraising frenzy

More than two-thirds of Chinese groups that have listed in the US this year have sunk below their initial public offering price, despite record levels of fundraising, as growing regulatory scrutiny hit investor sentiment.

The poor share price performance comes after 34 Chinese companies raised $12.4bn in New York floats in the first half of 2021, data from research provider Dealogic showed, an all-time high on both counts. That compared with 18 listings that raised $2.8bn in the same period last year.

The surge has delivered a record first-half windfall for Wall Street, with investment banks including Goldman Sachs and Morgan Stanley generating almost $460m in fees, according to Dealogic.

But about 70 per cent of these Chinese companies are trading below their IPO price, partly owing to the effect of growing regulatory headwinds from Beijing and Washington.

Regulatory pressure deepened on Monday, as China revealed it would broaden a crackdown on the technology, logistics and mobility sectors, announcing an investigation into possible data security breaches at Didi Chuxing and Full Truck Alliance, which both listed in the US last month. New users have been prevented from registering for the apps by the Cyberspace Administration of China.

Shares in RLX Technology, China’s largest e-cigarette manufacturer, which raised $1.4bn in January, are down 71 per cent after the country issued draft regulations classifying e-cigarettes as tobacco products in March.

Didi, the ride-hailing group that became the largest Chinese company to list in the US this year after raising $4.4bn in New York last week, has also been hit by regulatory scrutiny.

Its shares fell sharply on Friday after China’s cyber security regulator announced that Didi was under investigation. However, Didi’s stock is still above its IPO price.

The company was the biggest Chinese float in the US since Jack Ma’s ecommerce group Alibaba in 2014 raised $25bn, despite Didi cutting its initial fundraising target from a mooted $7bn.

“There are regulatory concerns for specific sectors and an overhanging general regulatory concern, so to get a multibillion-dollar deal done now you need to make it cheap to entice global long-only investors,” said one Hong Kong-based fund manager who has invested in Chinese deals in the US.

Full Truck Alliance, which provides Uber-like services for China’s trucking industry, raised $1.6bn on the New York Stock Exchange last month but its shares have also dipped below its IPO price. The CAC said on Monday it was investigating the group over data security issues.

Smaller Chinese deals have also performed badly. MissFresh, a Chinese grocery delivery app backed by internet group Tencent, is trading 34 per cent below its issue price after it went public in June. SoftBank-backed DingDong slashed its IPO target by more than 70 per cent prior to its listing. Its shares closed flat on their first day of trading, although they have since risen about 20 per cent.

Raj Ganguly, a partner at venture capital firm B Capital Group, which invests in the US and China, said: “For a lot of investors . . . they would rather invest in US technology companies or only the top and biggest Chinese technology companies.”

Chinese companies are facing crackdowns from both Beijing and Washington.

The former’s targeting of tech monopolies, which included fining Alibaba a record $2.8bn, has hit Chinese stocks listed in the US. The Nasdaq Golden Dragon China index, which tracks Chinese tech shares listed in New York, is down 8 per cent, vs a rise of 13 per cent in the US-focused Nasdaq Composite.

In the US, Chinese companies risk being delisted if they fail to comply with audit disclosure requirements. While the increased scrutiny has led to a series of secondary listings by such groups in Hong Kong, it has not weighed on the rush for US listings.

“The record highs [in fundraising] have much more to do with the appetite of Chinese issuers than US investors,” said the head of prime services at a European bank in Hong Kong.