China’s fintech giants are facing roadblocks when planning listings at home

An employee walks through the campus of the headquarters of Ant Group Co. in Hangzhou, China on Wednesday, January 20, 2021.

Qilai Shen | Bloomberg via Getty Images

Months after the sudden suspension of Ant Group’s much-anticipated double listing, China’s financial technology companies are struggling to go public in the mainland, analysts told CNBC.

According to Ringo Choi, EY’s Asia-Pacific IPO leader, few companies in the fintech sector have managed to list on the mainland Shanghai and Shenzhen stock exchanges.

“In financial technology, you can see that … some of the biggest companies that compete with the bank or the insurance company are going to have a tough time,” Choi told CNBC.

Last Friday, the China Securities Regulatory Commission announced a series of updated guidelines for companies wishing to list in the Shanghai STAR market – the Nasdaq-style Tech Board, officially known as the Shanghai Stock Exchange Science and Technology Innovation Board.

One of the guidelines was that financial technology companies should be banned from being on the STAR board. “Real estate and companies that are primarily active in financial services and investment businesses are not allowed to join the Science and Technology Innovation Board,” the CSRC said in the press release.

The latest development is another obstacle for Chinese fintech companies looking to get listed in the mainland.

It comes weeks after Chinese e-commerce giant JD.com withdrew its planned listing of its financial technology arm from the STAR market.

The current IPO climate is in stark contrast to the situation less than six months ago, when a number of Chinese startups planned to list domestically. One such listing was the highly anticipated public debut of Alibaba’s subsidiary Ant Group, which at the time was poised to become the world’s largest public offering.

Ant’s planned listing, set to take place in both Shanghai and Hong Kong, was abruptly suspended days before its debut after top executives, including founder and controller Jack Ma, were asked for questioning by Chinese regulators.

The unexpected exposure largely marked a turning point in Beijing’s stance on domestic tech giants, including fintech companies, which had grown largely unencumbered for years.

“Sentiment for this sector is facing some questions,” Bruce Pang, director of macro and strategic research at China Renaissance Securities (Hong Kong), told CNBC.

He said firms in the financial technology sector are now viewing Ant’s “adjustments” to his business as an “example” for others to list in the mainland.

In early April, Chinese regulators hired Ant – which runs the hugely popular mobile payment app Alipay in China – to overhaul its business. Reuters reported over the weekend that the fintech powerhouse is looking for opportunities for its founder Ma to sell his stake and give up control – but Ant quickly denied these claims as “untrue and unfounded” in a post from his official Twitter account.

Look elsewhere

Financial technology companies currently facing a “closed door” to raise capital on the STAR board of directors could look elsewhere for listings, Pang said.

The US and Hong Kong remain viable options for Chinese financial technology companies looking for alternative IPO targets, according to analysts.

An example of a Chinese fintech company that is successfully listed outside of the mainland is Lufax, which went public in the US in late 2020.

The Securities and Exchange Commission will likely “pass” Chinese companies wishing to list in the US as long as the companies are able to meet full disclosure requirements, EY’s Choi said. In Hong Kong, the process may be “stricter”, but they still have the option to go public if the requirements are met.

However, potential delisting concerns for Chinese companies in the US could weigh on investor sentiment. Under a new law passed by the Donald Trump administration, the SEC can suspend trading in securities that do not meet its auditing requirements.

– CNBC’s Evelyn Cheng contributed to this report.

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