US markets have been virtually closed to Chinese issuers for several months, but that hasn’t stopped small-cap IPO hopefuls from filing.
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After an active first half of 2021, just three Chinese companies went public in the 2H21 as China’s regulator cracked down on foreign tech listings, culminating in DiDi Global’s decision to delist from the NYSE in December. On the US side, the SEC plans to delist Chinese companies which are not compliant with new accounting oversight rules. Even the regulators gave the greenlight, new issuers would have a hard time drumming up demand: Last year’s US IPOs from China average a -53% return from the IPO price, with only 3 of 34 deals (9%) trading above offer.
Unsurprisingly, a number of large Chinese companies have shifted their IPO plans from New York to Hong Kong.
However, there are still 38 Chinese companies on file to go public in the US, 20 of which have submitted new or updated filings since the beginning of December. Most of these active filers are micro-caps with proposed deal sizes of less than $75 million. The latest addition to the pipeline, insurance firm Hengguang Holding (HGIA), filed earlier this week to raise $20 million.
The continued filing activity may be tied to China’s regulator clarifying its stance on foreign listings a few weeks ago, and the fact that non-tech micro-caps should receive little scrutiny. And while poor performance would normally make it difficult to attract new investors, Chinese micro-caps may benefit from the intense speculation that some small IPOs have experienced. Since the start of last year, eight small IPOs have popped more than 200% on their first day of trading, half of which were headquartered in China.
