SEC temporarily halts approvals of new Chinese IPOs after Didi debacle
Didi’s stock has plunged more than 30% from its initial public offering price of $14 a share, and is trading at nearly half the peak of above $18 that it hit on its IPO day.
The SEC is specifically concerned about Chinese companies that are structured as so-called Variable Interest Entities (VIEs). Although they’re based in China, these companies are set up as an offshore shell company — often in tax-friendly places like the Cayman Islands — to issue stock.
In addition to lower taxes, companies registering their businesses outside of China typically have been able to get speedier approval from regulators in the US for IPOs.
But Gensler said he wants these companies to disclose more information explaining that investors are not directly buying shares of a company headquartered in China, as well as more details about the relationship between the shell company and the parent firm.
He’s also looking for more disclosure about the risks these companies face as a result of any regulatory changes made by the Chinese government in the future and wants the companies to include more detailed financial information.
Gensler also said Friday that he has asked SEC staffers “to engage in targeted additional reviews of filings for companies with significant China-based operations.”
“I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies,” Gensler said.
Regulators from both countries should “properly address issues related to the supervision of China-based companies listed in the United States, so as to form stable policy expectations and create a good regulatory environment,” the CSRC said.
The agency also sought to quell concerns about Beijing’s crackdown on Chinese firms, which have spooked investors and led last week to a massive stock market sell-off.
The CSRC has “always been open to companies’ choices to list their securities on international or domestic markets,” it said in its statement, adding that it will communicate closely with other authorities in China to stay transparent about policy affecting such companies.
— Laura He contributed to this report.