Chinese language IPO hopefuls have to disclose extra dangers – business insurance
(Reuters) – The US Securities and Exchange Commission will not allow Chinese companies to raise money in the United States unless they fully explain their legal structures and disclose the risk of Beijing interfering in their business, the agency said on Friday and confirmed an exclusive report from Reuters.
In a statement, SEC chairman Gary Gensler said he had also asked employees to "conduct targeted additional reviews of applications for companies with significant offices in China."
The development underscores the concern of US politicians that Chinese companies are systematically violating US rules that require listed companies to disclose a number of potential risks to their financial performance to investors.
According to Refinitiv data, Chinese quotations in the U.S. have hit a record $ 12.8 billion so far this year as U.S. stock market companies capitalized and hit record highs every day.
Deal flow slowed significantly this month after Chinese regulators banned ride-sharing giant Didi Global Inc. from signing up new users just days after its blockbuster IPO. Raids against technology companies and private education companies followed.
In an interview with Reuters earlier this week, SEC Commissioner Allison Lee said that as part of their regular reporting obligations, Chinese companies listed on US stock exchanges must disclose to investors the risks of Chinese government interference in their businesses.
On Friday, Reuters reported that the agency will not process registrations for issuing securities of Chinese companies pending SEC guidelines on disclosing the risks they face in China.
Following this report, Mr. Gensler made a statement on Friday saying that in view of the Beijing crackdown, he had asked employees to seek additional disclosures from Chinese companies before their registrations take effect.
This should include investors facing "uncertainty about future actions by the Chinese government that could materially affect the operating company's financial performance" and the enforceability of certain contractual arrangements.
Chinese issuers must also disclose whether they have been denied permission to list on US stock exchanges by the Chinese authorities and the risks that such admission could be denied or revoked.
Additionally, Chinese companies should disclose when Chinese law requires them to be listed through an offshore shell company in the United States, which creates additional legal risks.
"I believe these changes will improve the overall quality of disclosure in registration statements from offshore issuers that have ties to China-based operating companies," said Gensler.
The SEC move represents the latest U.S. regulators volley against China, which has frustrated Wall Street for years with its reluctance to submit to U.S. auditing standards and improve the governance of companies tightly held by founders.