Nasdaq Inc. announced that it would impose new restrictions on initial public offerings (IPOs). Experts claimed that the new rules would make it harder for Chinese companies to enter the United States stock exchange.
The move to impose new restrictions on IPOs is Nasdaq Inc.'s response to the growing trade and political tensions between China and the US. Nasdaq did not, however, specifically mention which Chinese companies would be affected by the mandate. The sources noted that Nasdaq only manifested that Chinese IPO hopefuls who lack accounting transparency and have close ties to powerful insiders would be banned from the listings.
Under the new restrictions, companies from select countries, including China, need to raise 25 million USD in their IPO. As an alternative, they must showcase at least a quarter of their post-listing market capitalization before they would be allowed to list with Nasdaq.
The change would restrict Chinese companies from going public. Since 2000, Nasdaq has listed 155 Chinese companies, 40 of which grossed IPO proceeds below 25 million USD.
The imposition was Nasdaq's first directive of putting a minimum value on the size of its IPOs. Chinese companies currently listed with the
Nasdaq also manifested its desire to curb IPOs by small companies last year. The shares of these Chinese companies were said to be traded thinly because most of them stay under the directive of a few insiders. This strategy showed that they have low liquidity that made them less attractive to large institutional investors that Nasdaq seeks to serve in the future.
The tightening of listing standards was also reported to reflect the operator's concerns about Chinese companies that seek US IPOs. Last month, Beijing company Luckin Coffee was under scrutiny for accounting discrepancies. The company had a US IPO in 2019. At present, the company is under internal investigation when its chief operating officer and some of its employees fabricated sales deals.
The US Securities and Exchange Commission (SEC) has been asking the Chinese government to inspect the audits made by US-listed Chinese companies in the US stock market. It has determined an accounting oversight through the Public Company Accounting Oversight Board. At present, the board does not have access to the said critical records.
During an interview with Fox Business, US President Donald Trump would require Chinese companies that list with the New York stock exchange to follow US-imposed accounting standards. He also noted that Chinese companies might decide to list in Hong Kong or London instead.
