Beijing Stock Exchange could be an alternative to SPAC listings by innovative Chinese tech companies, trade group says

A new stock exchange slated for Beijing could be a potential alternative for emerging Chinese tech companies that may consider going public through Special Purpose Acquisition Companies (SPACs), especially as China is monitoring listings more closely. overseas in the sector, according to an influential trade group and market watchers.

Unveiled by the Chinese President Xi Jinping last week, the Beijing Stock Exchange is expected set up a group of innovative companies of the National Equities Exchange and Quotations Council (NEEQ), also known as the New Third Board. The initiative is part of China’s efforts to boost its domestic capital markets and expand access to finance for small and medium-sized enterprises (SMEs), while reducing debt levels.

Chinese officials hope the new exchange, which would target SMEs, may eventually become the go-to place for initial public offerings promising technology companies in the start-up phase and allow Chinese investors to benefit from the development of new local technology titans.

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“There are many factors that affect IPO decision making when companies decide where to list and what options to go public,” said Estella Kuo, secretary of the Zhongguancun Listed Companies Association, a trading group. representing over 400 listed and unlisted companies in China, primarily based in Beijing.

“The Beijing Stock Exchange will give them a good choice. Zhongguancun companies will certainly take advantage of this opportunity [along with SPACs]. “

SAVS, also known as blank check companies, were one of the hottest fundraising trends Over the past 18 months, investment vehicles have been on the lookout for growing companies, such as electric vehicle manufacturers and emerging technology companies.

As of the end of August, PSPC has raised $ 122.1 billion globally, mostly in the United States, according to financial data provider Refinitiv.

Blank check companies do not have an existing business. Instead, they are trained to amass financial war treasures and make acquisitions within a specified period, generally from 18 months to two years.

Singapore recently announced new listing reforms to allow the SAVS to become public in the city-state from this month. Hong Kong is separately explore whether to adjust your scoring rules to allow IPOs by blank check vehicles, but did not move forward with public consultation.

Investment vehicles have remained popular among Asian sponsors and target companies despite a recent slowdown in the pace of fundraising after a scorching first quarter where US $ 95 billion was raised in just three months.

In April, the US Securities and Exchange Commission (SEC) raised questions about accounting for common stock warrants in transactions, splashing cold water on vehicle financing. SEC investor advisory group recommended to regulator on Thursday adopt increased disclosure rules for business lists by blank check.

Investors, especially those providing private equity financing (PIPE) investments to make acquisitions, have become more selective on potential offers as the market tries to digest the sheer amount of capital raised.

Yi Huiman, chairman of the China Securities Regulatory Commission. Photo: Simon Song alt = Yi Huiman, chairman of the China Securities Regulatory Commission. Photo: Simon Song

And, Chairman of the China Securities Regulatory Commission Yi Huiman warned last week that PSPCs and other non-traditional listing models, such as direct listings, pose disruptive challenges to traditional IPOs and create problems for regulators.

“Some believe that these non-traditional models essentially virtualize IPOs, giving rise to regulatory issues around corporate governance, information disclosure and investor protection,” Yi said in a statement. speech at the annual meeting of the World Trade Federation last Monday. “We are following the development closely. Are these new models suitable for all markets? This probably requires further study.

At the same time, this summer’s crackdown on the country’s tech sector has weighed on overseas listings, with Beijing demanding more scrutiny of listings by companies that hold the personal data of a million or more Chinese.

As a result, PSPC’s appetite to acquire Chinese companies remains low, especially as tech companies are in the crosshairs of possible regulatory action, according to Peter Kuo, CEO of PTK Acquisition Corporation, a PSPC which has agreed to buy the Israeli Valens Semiconductors in May.

“People are taking a break from this,” he said.

Marcia Ellis, global chairman of the private equity group at law firm Morrison & Foerster, said a sponsor she had recently spoken to was not currently considering Chinese targets “because there has too much uncertainty “.

“This is largely an uncertainty that could be clarified over the next six months,” Ellis said. “Once things are clarified on several fronts, on the US and Chinese side, I think Chinese targets will be attractive again.”

The acquisition of the Tim Hortons China donut and coffee chain by a US-listed SPAC is one of the few deals to have been announced involving a Chinese company since the crackdown. As part of the deal, Tims, as it is known on the mainland, agreed to transfer control and possession of its Chinese customers’ data to a new, local company ashore ahead of its Nasdaq listing to appease regulators. Chinese.

Tim Hortons China is one of the few PSPC deals to be announced since Chinese regulators announced a more in-depth review of overseas listings. Photo: Document alt = Tim Hortons China is one of the few PSPC deals to be announced since Chinese regulators announced closer scrutiny of overseas listings. Photo: Handout

A big question for the New Beijing Stock Exchange – its appeal as an alternative listing venue – will be whether it can secure significant liquidity, as the New Third Board has struggled to do in the past.

“Personally, I’m a little skeptical as to whether the announcement was paired with a more comprehensive analysis of what it takes to build a meaningful market,” Kuo said. “When you think about logistics, trade infrastructure, and business quality, I don’t think the government has in the past thought about a lot of issues that need to be addressed to get a strong stock market in order to attract both strong companies and investors. “

Another issue that will need to be addressed is the long time it often takes for companies to register on the continent, according to the sponsors.

“One of the advantages of the SPAC route is speed,” said Jonathan Lin, who is also CEO of Magnum Opus Acquisition, a Hong Kong-based SPAC that agreed to buy the editor of Forbes in August. “With registrations in China, we will need to learn more about the new regulatory framework to see if registrations can be expedited while still providing the necessary transparency to stakeholders.”

This article was originally published in the South China Morning Post (SCMP), the most authoritative voice on China and Asia for over a century. For more SCMP stories, please explore the SCMP application or visit the SCMP Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.


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