Nasdaq will release new restrictions on IPOs that will restrict many Chinese companies from listing on the stock exchange in the future. Chinese companies listed in the US are facing increasing skepticism after Luckin Coffee admitted to fraud in April.
Why it matters: The new restrictions are likely to have a profound impact on Chinese tech startups. Many pick the New York-based bourse for going public, in part because of its relaxed rules.
- Beijing has been actively trying to keep Chinese tech companies from listing overseas since 2019.
- The new rules come in the midst of heated trade tensions between the US and China.
Details: The tightened rules will not single out Chinese companies, but are prompted by fears over transparency and accountability specific to them, Reuters reported.
- Companies China, and other countries, will have to raise more than $25 million in their IPO or one quarter of their market capitalization after listing.
- This is the first time Nasdaq has set a minimum threshold for IPO value.
- Only 40 out of 155 Chinese companies that have listed on the Nasdaq since 2000 would have met this requirement, Refinitiv data suggests.
Context: In April, Nasdaq-listed beverage chain Luckin Coffee admitted to falsifying RMB 2.2 billion in sales.
- US-based short sellers have followed Luckin’s admission with reports alleging misconduct at streaming giant Iqiyi and edtech startup GSX.
- But China’s financial authorities want to discourage homegrown tech companies from listing overseas. In June 2019, they launched a Nasdaq-style exchange in the Shanghai bourse, relaxing regulations to allow for more startups.
- Five months later, regulators said they would expand the reforms to other stock exchanges in the country. In late April 2020, Shenzhen’s stock exchange embraced these changes.