More trouble could be brewing for Chinese tech stalwarts that have listings in the U.S. market.
What Happened: China is eyeing a ban on domestic companies that are seeking to apply for overseas listing through variable interest entities, or VIEs, Bloomberg reported, citing people familiar with the matter.
The ban will be part of a new draft of overseas listing rules that China is contemplating to finalize as early as this month, the report added. The efforts to block overseas listings is partly being undertaken to address concerns over data security.
Companies contemplating to list their shares on the Hong Kong stock exchange through the VIE structure, however, will be allowed to do so, upon regulatory approval, the report said.
VIE refers to an entity controlled by an investor not by ordinary ownership but through a series of controlling agreements that allow the investor to consolidate such entities into its financial statements.
And for those already listed in the U.S. and Hong Kong through VIEs, the government is looking to make it mandatory for them to make adjustments, Bloomberg said. This is to make their ownership structures more transparent to facilitate regulatory reviews, especially in sectors that are off limits for foreign investment, it added.
The report also suggested that it is unclear at this point whether the changes would require a revamp of shareholders or a delisting of the most sensitive firms.
Why It's Important: The proposed measures under discussion would mean Beijing will undertake one of the biggest crackdowns on overseas listings. This has political ramification as well and could strain the already fragile relationship between China and the U.S.
DiDi Global Inc. DIDI, which went on to list its ADSs in the U.S. despite the regulatory hurdles, is precariously positioned. China has been heaping pressure on the ride-hailing company to initiate delisting procedures.
Big Chinese tech firms such as Alibaba Group Holding Limited BABA, Tencent Holdings Limited TCEHY and JD.com, Inc. JD have taken advantage of the VIE route to circumvent foreign investment restrictions to list their shares overseas. This has provided additional avenues of financing for funding their operations.
These companies have already taken a huge hit from an extended regulatory crackdown that was set in motion late last year. The Jack Ma- co-founded Alibaba was the first to feel the pinch.
Fearing delisting, the SEC has reportedly halted pending initial public offerings by Chinese companies until clarity emerges on the regulatory and political fronts.
In premarket trading, Alibaba shares were up 1.07% at $128.90.
JD.com was advancing 1.65% to $85.50.
Didi was edging up 0.39% to $7.66.
Related Link: Is More Trouble Brewing For Alibaba, Its Tech Counterparts? Beijing Reportedly Considers Data Tax
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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