US Tightens Rules For Chinese IPOs After Didi Debacle

Image credit: Didi Chuxing

US Securities and Exchange Commission requires disclosure of risks from Chinese regulators for Chinese companies’ IPOs following Didi selloff

The US financial regulator has said it will now require Chinese companies to disclose potential risks associated with China’s crackdown on technology companies, and other risks, in order to list shares in the country, following controversies around the US IPO of Chinese ride-hailing firm Didi last month.

Separately, Didi denied a report that it was considering delisting its shares from the New York Stock Exchange to appease Chinese regulators.

Securities and Exchange Commission (SEC) chair Gary Gensler, who announced the new rules, said he had also asked staff to “engage in targeted additional reviews” of filings for companies that have “significant” China-based operations.

Gensler said the additional disclosures from Chinese companies should include that investors face  “uncertainty about future actions by the government of China that could significantly affect the operating company’s financial performance” and the enforceability of some contractual arrangements.

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Companies must also disclose if they were denied permission from Chinese authorities to list on US exchanges and whether Chinese law requires them to list in the US via an offshore shell company.

“I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies,” Gensler said.

The shift follows pressure on the regulator by US lawmakers, who fear Chinese companies are systematically flouting US disclosure rules.

Those fears were catalysed in July when Chinese regulators cracked down on Didi Global only days after its massive IPO on the NYSE.

After banning Didi from signing up new users Chinese regulators followed with more restrictions on technology and private tutoring companies.

Regulatory risks

The restrictions led to a selloff in Didi’s shares, which are currently down by about one-third after the company’s IPO raised $4.4 billion (£3.15bn).

Late last week the company’s shares soared following a Wall Street Journal report that Didi might be considering delisting its NYSE shares to appease Chinese regulators.

But the company denied it was considering doing so.

“The rumours about the privatisation of Didi are untrue, and the company is currently actively cooperating with cybersecurity reviews,” the company said on Weibo, a Chinese social media platform.

Last week a group of Republican senators called on the SEC to launch an inquiry into US-listed Chinese companies, citing losses sustained by Didi investors.

A total of 418 Chinese companies are listed on US exchanges, according to Refinitiv, which calculates that Chinese listings in the US have reached a record $12.8bn so far this year.