May 18, 2021

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A “flood” of Chinese companies rushes into the hot IPO market in the US

A "flood" of Chinese companies rushes into the hot IPO market in the US

The Xpeng P7 electric vehicle exhibited off the New York Stock Exchange in August. 27, 2020, when the Chinese electric vehicle launched its initial public listing.

Jeenah Moon | Bloomberg | Getty Images

BEIJING – Chinese companies are rushing to go public in the hot IPO market in the US, before it loses strength.

According to consulting firm EY, the first three months of the year marked the busiest quarter for overall U.S. initial public offerings since 2000.

Despite the coronavirus pandemic and tensions between the US and China, half of the 36 foreign public lists in the US during that time were from companies based in Greater China, EY said.

Others are coming.

About 60 Chinese companies plan to go public in the United States this year, Vera Yang, China’s chief representative for the New York Stock Exchange, said Tuesday.

“From our interactions with companies, our feeling is that they wouldn’t want to waste time (in the listing),” Yang said in a Mandarin-language interview, translated by CNBC. He pointed to uncertainties such as those brought about by the pandemic and a probable longer-term monetary policy tightening that would reduce the availability of capital.

Our phone is ringing. We are looking to hire more people. We haven’t seen anything like this since the Nasdaq bubble in ’99. It worries me.

Gary Dvorchak

CEO, Blueshirt

Concerns over the delisting have subsided since President Joe Biden took office in January and market participants are expecting a compromise, said Blueshirt CEO Gary Dvorchak, who advises Chinese companies interested in listing in the United States.

“It’s a tsunami,” he said of the Chinese IPO pipeline.

“Our phone is ringing. We are trying to hire more people. We haven’t seen anything like this since the Nasdaq bubble in ’99,” he said. “It makes me worry.”

The rich get richer

In the late 1990s, a wave of speculation in new technology companies ranging from Pets.com to Cisco fueled a US stock market bubble that began to burst in 2000, in what became known as the “dotcom bubble.” “.

This year, investor bonds on profitable business ventures have meant that capital only accumulates in some of the same companies, rather than spreading their bets. The trend is in China, home to many of the world’s so-called unicorns, or startups worth $ 1 billion or more.

Hongye Wang, a Chinese partner of venture capital firm Antler, said anecdotally, more people are asking him for unicorn stock than early stage startups.

“A lot of companies can’t raise a lot of money, or their valuations are going down. But if you look at unicorns, especially pre-IPO unicorns, their valuation is still insane,” he said.

Just take the popular Chinese carbonated water company Genki Forest, which reportedly secured another $ 500 million equity injection earlier this month bringing its valuation to $ 6 billion. In contrast, one of the largest yuan fundraising rounds that week was a much smaller Series B injection of 600 million yuan ($ 92.3 million) into Abogen Biosciences, according to Crunchbase.

In a sign that some valuations may be too high, many Chinese stocks listed in the US and Hong Kong have plummeted after their initial public offerings this year.

For example, in February the Chinese short video app Kuaishou climbed 160% to $ 300 a share in the internet company’s largest IPO since Uber, and Hong Kong’s largest debut since the pandemic. But his stock struggled to build on these gains and closed at $ 274 per share on Tuesday.

“The price performance after the IPO is not as good as it was last year,” Ringo Choi, leader of the Asia-Pacific IPO told EY. He expects a slowdown in public offerings starting in the third quarter of this year, especially if the macroeconomic environment takes a bad turn.

For now, some of China’s largest startups are still in the IPO stage, though the timing is not clear. Beijing-based ByteDance, owner of the popular short video app TikTok, is the largest unicorn in the world, while Chinese car travel company Didi Chuxing is in fourth place, according to CB Insights.

Investors are “supportive, but more selective” of Chinese companies that may be able to sustain high valuations, Yang said, citing conversations with various investment funds.

He said that among the China-based companies listed in the United States this year, the first area of ​​focus is a category known as technology, media and telecommunications. Consumer brands and business services follow, Yang said.