Recently, the electric vehicle brand Zeekr made its debut on the New York Stock Exchange, setting a price of $21 per American Depositary Share (ADS) and bringing a target valuation of $5.13 billion. By the close of trading that day, Zeekr had achieved a total market capitalization of $6.898 billion (approximately 49.85 billion yuan). This event highlights a renewed interest in U.S. listings by Chinese companies in early 2024, amidst increasing challenges in the domestic A-share market, where initial public offering (IPO) thresholds are becoming steeper and the pace of listings has slowed. As a result, many enterprises and their backers are shifting their focus back to American and Hong Kong markets for IPOs.
Once a favored exit strategy for domestic dollar funds in the primary market, the overseas IPO landscape has faced significant hurdles due to a myriad of influential factors. Consequently, Chinese firms exploring foreign listings have entered a cooling period, leaving dollar funds in a precarious position with limited exit opportunities domestically. The recent uptick in overseas IPO activity coincides with new measures supporting foreign investment within China's borders, raising industry hopes about whether dollar funds can once again thrive in the domestic primary market.
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A notable shift has occurred as more Chinese companies eye overseas IPOs. According to data compiled by Securities Times, by the end of April this year, 18 Chinese companies had listed in the U.S., marking a 38.5% year-on-year increase. These IPOs collectively raised $1.7 billion (roughly 12.3 billion yuan), experiencing a striking 215% rise from the previous year, where just $540 million was raised. The highest fundraising came from Amer Sports, a subsidiary of Anta Sports, fetching a whopping $1.57 billion, which accounted for 92% of the total capital raised among these firms, with the others mainly securing funding in the millions.
Despite the overall trends, the stock performance of these 18 new Chinese listings has mainly been disappointing, with most facing substantial declines in share price since their debut. Notably, two companies have seen declines exceeding 80%, and four others have dropped by more than 70%. Conversely, only two firms, Hongguan Photovoltaic Technology and Haoxi Health Technology, have experienced gains exceeding 100% since going public. This contrast highlights the volatile nature of overseas listings amidst market uncertainties.
Yet, the ambition to pursue U.S. IPOs remains strong among many companies. Data reveals that out of 362 companies awaiting U.S. listings, 84 of them are Chinese firms currently backed by the China Securities Regulatory Commission (CSRC), waiting for their turn, representing 23% of the total. This surge paints a compelling picture of the Chinese corporate landscape's adaptive strategies in seeking global opportunities, particularly when domestic options seem increasingly restrictive.
Industry analysts argue that the channels for U.S. listings for Chinese enterprises have never been fully shut, but rather, companies assess their individual situations along with potential post-listing performance in their decision-making processes about overseas IPOs. The pressures of successful exits for institutional investors are palpable; therefore, whether it’s in Hong Kong or New York, firms are increasingly considering the international route.
Additionally, it has been noted by investment entity leaders that for companies already receiving funding, an overseas listing can diversify their financing sources. The U.S. market, characterized by higher valuation potentials and greater liquidity, can significantly enhance a company's visibility and market recognition, which is crucial when contemplating international expansion.
As the second quarter of this year unfolds, there is growing optimism regarding China’s economic recovery, improving liquidity conditions, and a returning confidence in global capital markets looking back toward Chinese assets. The Hang Seng Index has achieved its longest positive streak in six years, while an increasing number of companies are hastening their preparations for listings in Hong Kong. According to the Hong Kong Stock Exchange, there have been 15 listings this year alone, with expectations of a surge in listings during the second half. Projections indicate that there could be as many as 46 new applications for listings in 2024, compounding them with last year’s unaddressed applications could yield a total of 117, signaling a robust IPO season ahead.
In light of these developments, policy measures are adjusting to support this rejuvenated interest. The recent warming of the overseas IPO market and enhancements in liquidity directly facilitate more lenient exit routes for domestic dollar funds. Recent regulations have emphasized various points aimed at facilitating the pursuits of foreign institutions within China's investment landscape. Some of these strategies include fostering foreign venture capital fund establishments within China, enhancing cooperation between overseas entities and domestic partners, encouraging investment in emerging strategic industries, and simplifying exit mechanisms for overseas listings.
These strategies have been met with approval, as they touch on areas that stimulate collaboration and liquidity. Experts such as Wang Zhenlong, founder of Yuntai Capital, noted that fostering an environment for foreign investment creates opportunities while simultaneously presenting challenges for domestic players, given the differences in investment logic.
Moreover, revitalizing investment opportunities has been visible in places like Shanghai, where previously restricted foreign investor policies have seen significant relaxations, evidenced by the broadened Qualified Foreign Limited Partner (QFLP) pilot schemes designed to attract foreign capital into the city’s economy.
Investment opportunities in sectors like next-gen information technology, artificial intelligence, renewable energy, and advanced manufacturing among others, remain a focal point for foreign capital investments according to various industry perspectives. The signals being sent through policy changes suggest an openness to attracting international partners in crucial sectors, and an eagerness to share technological advancements for fostering domestic innovation.
In conclusion, while the backdrop of regulatory constraints persists, the signs of a healthier engagement environment for foreign institutions in China are emerging. Observers suggest that the fusion of local knowledge and international capitalization forms a pivotal strategy in unlocking further development potential for the nation’s burgeoning industries. With policy-makers enhancing the regulations governing foreign investments, particularly in the tech sector, it becomes increasingly clear that foreign investment will play a crucial role in shaping the modern economic landscape of China.