Exclusive-U.S. regulator freezes Chinese company IPOs over risk disclosures -sources

[July 30, 2021]  By Echo Wang, Scott Murdoch and Kane Wu

(Reuters) - The U.S. Securities and Exchange Commission (SEC) has stopped processing registrations of U.S. initial public offerings (IPOs) and other sales of securities by Chinese companies while it crafts new guidance for disclosing to investors the risk of a new regulatory crackdown by Beijing, according to people familiar with the matter.

Chinese listings in the United States have reached a record $12.8 billion so far this year, according to Refinitiv data, as companies swooped in to capitalize on the U.S. stock market reaching daily record highs.

Deal flow slowed down substantially this month after Chinese regulators banned ride-sharing giant Didi Global Inc from signing up new users just days after its blockbuster IPO. They followed up with crackdowns on technology and private education companies.

SEC commissioner Allison Lee said on Tuesday that Chinese companies listed on U.S. stock exchanges must disclose to investors the risks of the Chinese government interfering in their businesses as part of their regular reporting obligations.

The SEC has asked companies not to submit any registrations for the issuance of securities until it gives them specific guidance on how to disclose the risks they face in China, the sources said. It was not immediately clear how long this would take.

A spokesman for the SEC did not immediately respond to a request for comment.

The SEC's move represents the latest salvo by U.S. regulators against corporate China, which has frustrated Wall Street for years with its reluctance to submit to U.S. auditing standards and improve the governance of companies held closely by founders.

The agency has been under intense pressure from U.S. lawmakers to take a tougher line. A group of senators including Republicans John Kennedy and Bill Hagerty wrote to SEC chair Gary Gensler this week urging "thorough investigations of U.S. listed Chinese companies' concerning lack of transparency."

Last month, the SEC removed the chairman of the Public Company Accounting Oversight Board (PCAOB), which has been unsuccessful in a push to ensure independent auditing of U.S.-listed Chinese companies. The SEC is also under pressure to finalize rules on the delisting of Chinese companies that do not comply with U.S. auditing requirements.

The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their headquarters in Washington, D.C., U.S., May 12, 2021. REUTERS/Andrew Kelly/File Photo/File Photo

Some 418 Chinese companies are listed on U.S. exchanges, according to Refinitiv. The S&P/BNY Mellon China Select ADR Index, which tracks the American depositary receipts of major U.S.-listed Chinese companies, has lost 22% of its value year-to-date, compared to an 18% rise in the S&P 500 index.

No major U.S. IPO of a Chinese company is in the works following Didi, as the business community in China tries to get to grips with the regulators' intentions.

Chinese officials said last week they would bar tutoring for profit in core school subjects to ease financial pressures on families that have contributed to low birth rates, sending shockwaves through the country's private education sector. This came on the heels of a broad crackdown on China's massive internet sector amid concern in Beijing over the safety of the personal data of its citizens.

China's securities regulator held a meeting with executives of top global investment banks on Wednesday to calm financial market nerves, people familiar with the matter told Reuters. Official policies will be rolled out more steadily to avoid sharp volatility in the markets, the regulator told the banks.

State-backed newspaper China Daily also said Beijing remained supportive of domestic companies seeking to list overseas, and that regulators would soon unveil measures to further open capital market to foreign entities.

Some Chinese companies canceled their U.S. IPOs this month proactively. LinkDoc Technologies pulled its offering to raise $211 million soon after Didi's troubles emerged, while Hello Inc this week announced its U.S. listing plans were on hold.,

(Reporting by Echo Wang in New York, Scott Murdoch and Kane Wu in Hong Kong; additional reporting by Katanga Johnson in Washington, D.C.; editing by Greg Roumeliotis and Richard Pullin)

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