China’s deep scrutiny of overseas listings by its companies and crackdown on ridesharing giant Didi Global Inc soon after its New York debut has clouded the outlook for listings in the United States, bankers said. and investors.

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On Tuesday, Beijing said it would tighten supervision of all Chinese companies listed overseas and tighten the rules for cross-border data flows, a drastic regulatory change that is also expected to weigh on the long-term valuations of companies linked to the the IPO, they said.

Bankers and investors expect the pace of activity to slow in the near term as investors grapple with Beijing’s move to tighten oversight of overseas listed companies, just days after regulators surprised investors by launching a cybersecurity investigation into Didi.

“Suffice it to say that Chinese companies already planning to list in the United States will have to take a break, if not completely abandon their plans, in the face of growing uncertainties and confusion,” said Fred Hu, president of Primavera Capital Group. .

Read also | China’s tech crackdown wipes out billions from Didi and other US listed companies

“The US market is off-limits, at least for now,” said Hu, whose private equity firm’s portfolio includes a number of tech companies that have gone public overseas. “… The stakes are extraordinarily high, both for technology companies and for China as a country.”

U.S. capital markets have been a lucrative source of funding for Chinese companies over the past decade, especially for tech companies looking to benchmark their valuations against their listed peers there and tap into a pool. abundant liquidity.

A record $ 12.5 billion has been raised so far in 2021 in 34 offers from Chinese business listings in the United States, according to data from Refinitiv, well up from new listings from a worth $ 1.9 billion in 14 transactions during the period last year.

Analysts say that China’s steps to take a closer look at companies venturing abroad add a new layer of uncertainty for companies already struggling to deal with escalating tensions between Beijing and Washington on a wide range of issues.

“The message is that for a successful overseas listing, Chinese regulators must be involved, as well as international cooperation with overseas regulators,” said Louis Lau, chief investment officer of Brandes Investment Partners, based in California.

Read also | Didi says app takedown could affect revenue, other US-listed Chinese companies surveyed

“Chinese overseas-listed companies may have had the mistaken impression that they could ignore Chinese regulators simply because they are not listed in China,” Lau, whose company owns shares, told Reuters. Chinese stocks.

The broader regulatory crackdown and Didi listing dust caused the S & P / BNY Mellon China Select ADR Index, which tracks U.S. certificates of deposit of major Chinese companies listed in the U.S., to drop 3.4% on Tuesday.

“Clear signal”

Catching many investors and Didi off guard, the Cyberspace Administration of China (CAC) on Sunday ordered the ridesharing company to remove its apps from app stores in China for illegally collecting users’ personal data, less than a week after that. debuted on the New York Stock Exchange after its $ 4.4 billion IPO.

It was the largest Chinese IPO in the United States since e-commerce giant Alibaba Group raised $ 25 billion in 2014.

For investors, the euphoria was short-lived, with Didi’s shares plunging 27% since its debut on June 30.

The ACC also announced surveys of Kanzhun Ltd’s online recruiting app, Zhipin, and truck haulage company Full Truck Alliance.

Read also | Alipay and Wechat Limit User Access to Didi Firmware in China

“This is a clear signal that the Chinese government is not particularly happy that these companies continue to decide to raise capital in the West,” said Jordan Schneider, technology analyst at research firm Rhodium Group.

The moves come as the U.S. securities regulator in March began rolling out new regulations that could result in Chinese companies being delisted if they fail to comply with U.S. audit rules.

A boost for Hong Kong

While the latest crackdown has clouded the outlook for large Chinese IPOs in New York City, not all companies are rushing to withdraw their outstanding offers just yet.

LinkDoc Technology Ltd, which is described as a Chinese provider of medical data solutions, is currently raising up to $ 211 million on an IPO in the United States and is expected to value its shares after the U.S. market closes on Thursday.

There has been no change to this schedule yet, according to two sources with direct knowledge.

LinkDoc did not immediately respond to a request for comment.

Wall Street banks, which have profited from the rush of Chinese companies to list in New York in recent years, are also expected to be impacted on their short-term fee income, according to the bakers.

The investment banking fees for Chinese deals have so far amounted to $ 485.8 million in 2021, according to data from Refinitiv. Goldman Sachs, Morgan Stanley and JPMorgan lead the rankings for trading volumes, according to the data.

Read also | Asian industry group warns changes to privacy law could force tech companies out of Hong Kong

Goldman Sachs declined to comment while Morgan Stanley and JP Morgan did not respond.

Some bankers have said the latest regulatory crackdown will further strengthen Hong Kong’s appeal as a fundraising location for Chinese companies seeking to avoid new listing restrictions in the United States.

Underlining this optimism, shares of Hong Kong Exchanges and Clearing Ltd (HKEX) rose 6.2% on Wednesday, and were the second most actively traded stock in terms of revenue.

“The purchase is fueled by the hope that HKEX will become the only IPO center for Chinese companies seeking to be listed and the main center for raising foreign capital,” said Steven Leung, sales director of the brokerage firm UOB Kay Hian in Hong Kong.