A “tidal wave” of Chinese companies crashes into the glowing IPO market in the USA
The Xpeng P7 electric vehicle was on display in front of the New York Stock Exchange on August 27, 2020 when the Chinese electric vehicle went public for the first time.
Jeenah Moon | Bloomberg | Getty Images
BEIJING – Chinese companies are rushing to go public in the glowing US IPO market – before it loses steam.
The first three months of the year were the busiest quarter for the US IPO since 2000, according to consulting firm EY.
Despite the coronavirus pandemic and US-China tension, half of the 36 foreign public listings in the US during that time were from companies based in Greater China, EY said.
More are coming.
About 60 Chinese companies plan to go public in the US this year, Vera Yang, China’s chief representative for the New York Stock Exchange, said Tuesday.
“Because of our interactions with companies, they don’t want to waste time (on listing),” Yang said in a Mandarin interview translated by CNBC. She pointed to uncertainties such as those caused by the pandemic and the likely longer-term tightening of monetary policy that would reduce the availability of capital.
Our phone rings. We’re trying to hire more people. We haven’t seen anything like this since the Nasdaq bubble in 1999. Worries me.
Managing Director, Blueshirt
Delisting concerns have subsided since President Joe Biden took office in January, and market participants await a compromise, said Gary Dvorchak, general manager of Blueshirt, which advises Chinese companies interested in listing in the US
“It’s a tidal wave,” he said of the Chinese IPO pipeline.
“Our phone is ringing. We’re trying to hire more people. We haven’t seen anything like this since the Nasdaq bubble in 1999,” he said. “Worries me.”
The rich get richer
In the late 1990s, a wave of speculation among new tech companies ranging from Pets.com to Cisco created a US stock market bubble that began to burst in 2000 and became known as the “dot-com bubble”.
This year, investors’ caution about viable business ventures resulted in capital accumulating in just a few of the same companies rather than spreading their bets. The trend continues in China, which is home to many of the world’s so-called unicorns – or startups worth $ 1 billion or more.
Hongye Wang, a China-based partner in venture capital firm Antler, said anecdotally more people ask him for shares in unicorns than in earlier-stage startups.
“A lot of companies can’t raise a lot of money or their rating (s) go down. But if you look at the unicorns, especially the pre-IPO unicorns, their rating is still insane,” he said.
Just take popular Chinese soda water company Genki Forest, which reportedly secured another $ 500 million capital injection earlier this month and raised its valuation to $ 6 billion. In contrast, one of the largest yuan donation rounds this week, according to Crunchbase, was a much smaller Series B injection of 600 million yuan ($ 92.3 million) into Abogen Biosciences.
As a sign that some valuations may be too high, many Chinese stocks listed in the US and Hong Kong plummeted after going public earlier this year.
For example, the Chinese short video app Kuaishou rose 160% in February to $ 300 per share in the internet company’s largest IPO since Uber and its biggest debut in Hong Kong since the pandemic. The stock struggled to build on those gains, however, and closed Tuesday at $ 274 per share.
“Post-IPO price development is not as good as it was last year,” said Ringo Choi, EY IPO leader in the Asia-Pacific region. He expects public offerings to slow down from the third quarter of this year, especially if the macroeconomic environment worsens.
Currently, some of China’s largest startups are still in the IPO pipeline, although the timing is unclear. Beijing-based ByteDance, owner of the popular short video app TikTok, is the world’s largest unicorn, while Chinese hail-fighting company Didi Chuxing ranks fourth according to CB Insights.
Investors “support but more selectively” Chinese companies that may be able to maintain high valuations, Yang said, citing discussions with various mutual funds.
She said that among the China-based companies listed in the United States this year, the first area of interest is a category known as Technology, Media, and Telecommunications. It is followed by consumer brands and business services, Yang said.