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Fewer Chinese companies IPO in the US in 2019

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Fewer Chinese companies came to the U.S. public market in 2019, amid tightening security in the U.S. and relaxed rules at home.

Compared to last year’s blockbuster number of 35 deals and proceeds of $9 billion, 25 Chinese companies listed in the U.S. in 2019, raising a total of $3.5 billion, according to data compiled by Renaissance Capital. Listings in the domestic market, meanwhile, has skyrocketed. China had 179 domestic IPOs, a 75% jump from last year, and the total deal size also went up by 58%, Baker McKenzie's report shows.

(David Foster/Yahoo Finance)
(David Foster/Yahoo Finance)

“The fact that fewer Chinese issuers listed in the U.S. in 2019 compared to 2018, but the number of [Chinese companies] listings in China was up so much; that clearly is a trend,” said Mark Mandel, an attorney at Baker McKenzie. “As the China and Hong Kong markets loosen their listing standards, Chinese companies chose to list closer to home instead of coming here.”

Beijing has been making repeated efforts to lure foreign-listed tech giants home and keep IPO-ready unicorns staying close to domestic investors. China has launched the STAR Market in July, which allows companies that are not yet profitable to be listed. The Hong Kong Exchange has also changed its rules to allow dual-class structure, raking in big names like Alibaba and Xiaomi.

IPO returns vary

While investing in an IPO could be a risky move, it’s especially so when it comes to Chinese IPOs. This year, the average return on Chinese IPOs is a loss of 20%, while the average return on all U.S. IPO is a 20% gain. The below-average return on Chinese IPOs may have deterred some investors.

“I think investors have been really turned off by companies that don't make money. And a lot of Chinese companies that have come here are in this tech and biotech area. A lot of them aren't making money,” said Kathleen Smith, principal at Renaissance Capital. “On top of that, it's the worry about Chinese growth. It may be a little bit of trade, but I think it's more about, is the Chinese economy growing?”

(David Foster/Yahoo Finance)
(David Foster/Yahoo Finance)

China’s economic growth, at its slowest speed in three decades, is unlikely to turn the tide in the short term. Most Chinese companies operate within the country and rely on a robust consumption and business environment to meet investors’ expectations.

Regulation overhang could also dampen some investors’ interest. While the “phase one” trade deal between the U.S. and China is being finalized and the administration has denied reports of delisting Chinese companies, there have been two active bills in Congress that will require all Chinese companies to be subjected to auditing rules set by the Public Company Accounting Oversight Board (PCAOB), a nonprofit Congress created in 2002. It’s unclear if China will open its financial books for oversight.

GSX Techedu, an online education company, is the best performing Chinese IPO this year with a 97% return since its listing in June. Wanda Sports, the sporting arm of the Chinese conglomerate Wanda Group, had the worst IPO among Chinese companies this year, with a loss of 67% of its IPO value.

Krystal Hu is a reporter at Yahoo Finance. Follow her on Twitter: @readkrystalhu

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