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China's draft offshore IPO rules to apply to HK says CSRC

posted onJanuary 28, 2022

China’s new rules on overseas initial public offerings (IPOs) will apply to Hong Kong, the country's Securities Regulatory Commission said on Friday (Jan. 28).

"By overseas, we mean, of course, you know, anywhere besides mainland China,” Shen Bing, the commission's director-general of the international affairs department, told CNBC. "Of course, it includes Hong Kong," he explained.

Pressure for regulation changes had been building for years but in the past several months, Beijing tried to control more closely how the Chinese companies raise money overseas, citing national security among other reasons, in the wake of Didi Global Inc.’s controversial Ne w York listing. 

The ride-hailing giant Didi proceeded with its mega $4.4 billion IPO despite regulatory concerns over the security of its data.

Didi shares tanked after China shocked investors by announcing it was investigating the company. Last month, Didi said that it would remove its American depositary shares from the New York Stock Exchange and pursue a listing in Hong Kong. 

On Dec. 24, 2021 China's Securities Regulatory Commission, released two draft rules for domestic companies eyeing overseas listings, open for public consultation until January 23, 2022. The country’s top securities regulator did not reveal an implementation date. 

Shortly after that, on December 27, 2021, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) rolled out the updated Special Administrative Measures for Foreign Investment Access (2021 Edition) which added a provision regarding overseas listings of Chinese companies engaged in businesses restricted from receiving foreign investment. 

“What they’re not pushing toward is a further delinking or decoupling with the global financial system, but they’re rather recognizing that their regulatory environment could be improved to provide more certainty that companies listing overseas are complying with domestic laws,” Jason Elder, a capital-markets lawyer at Mayer Brown LLP who has worked on deals involving Chinese companies had told the Wall Street Journal. 

Meanwhile, the heightened scrutiny by Chinese regulators has been echoed by their U.S. counterparts. The U.S. Securities and Exchange Commission also in December asked Chinese companies to disclose more details about their regulatory risks and ties to government backers.

In the first week of 2022, China’s powerful internet regulator, the Cyberspace Administration of China (CAC), announced a revised version of its cybersecurity review regulations which played a key role in crippling Didi’s listing on the NYSE in June.
Starting from Feb. 15, CAC's revised rules will officially place more restrictions on Chinese companies seeking overseas listings as the regulator will officially require data security reviews for certain companies before they are allowed to list abroad. 

In feedback to the CSRC, the Asia Securities Industry and Financial Markets Association (AFISMA)-which counts 52 banks and other financial institutions among its members- highlighted its “great concern” that the planned rules are “completely unclear," according to a FT report. 

In the letter sent on Sunday, which was seen by Reuters, the top financial sector lobby group, urged the regulator to remove a requirement for banks having to file annual reports by Jan. 31 and detail the offshore listings of Chinese companies they worked on during the year. 

Will Beijing's move create more regulatory uncertainty? Only matter of time to know the answer.

With reporting by CNBC, WSJ, FT, Reuters

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