What was once a deluge of public listings for “Big Tech” Chinese companies now is a deluge of delays. This past week has seen a wave of IPOs “pulled” from listing – either official withdrawals or pullbacks from even mulling the idea.
In the latest salvo on Monday (July 12) is TikTok owner ByteDance. As reported by The Wall Street Journal, the company has “put on hold indefinitely” its intentions to list shares outside of China.
Now, that’s not the same as, say, filing documents with the SEC and then abandoning plans, or working through the time-honored tradition of a roadshow. But the decision to back away from a public listing signals a certain amount of skittishness over how investors, whether here in the United States or in Hong Kong, would react to that listing.
A “busted” IPO – one where shares wind up trading lower than their initial offering price out of the proverbial gate – ostensibly makes it tougher to raise capital moving forward, and the volatility of stock markets can make it tough to use stock as currency (for acquisitions, for example). In some cases, such as if markets seem frothy, company management steps back from the opportunity to move ahead with a listing.
But on a deeper level, fundamentals drive valuation – because fundamentals also drive revenues and earnings, which in turn help drive the multiples assigned to those metrics, which ultimately determine the stock price(s). It’s tough to gauge sales and earnings potential when the government is seemingly hobbling prospects within China – the home country of no fewer than five companies that have pulled their IPOs in the last few weeks alone.
Data – the collection of it, the storage of it and ultimately the use of it – is the central issue here, and will likely become the flashpoint for any manner of companies that interact with end consumers, take payments or create profiles.
As spotlighted in this space, several companies have decided not to move forward with their U.S. offerings. That roster includes the medical data firm LinkDoc Technology and the fitness app Keep. Other companies, as reported by Fortune, include the podcast/radio platform Ximalaya, which has reportedly shelved plans to list in the U.S. and is now looking to list in Hong Kong.
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In terms of deal size, companies like Keep would have raised about $500 million; smaller listings like Hello, a bike-sharing firm, would have raised about $100 million.
There are still about 17 listings gearing up for NASDAQ IPOs, as estimated by Fortune. But the Chinese government has said that it is probing two companies already listed in the United States (beyond Didi) – including Full Truck Alliance, which has been likened to an “Uber for trucking.” That company raised about $1.6 billion in its June IPO and is now trading at about $15.80, having traded at about $21 just a few weeks ago.
Those filings are relatively small compared to, say, Didi’s $4 billion listing last month. But the same clouds are on the horizon, courtesy of the Chinese government. Tougher government scrutiny is likely to hobble U.S. initial public offerings this year, which through the spring had generated $6.6 billion for companies from mainland China and Hong Kong — eight times the same period in 2020, Bloomberg reported, citing its own data.
As for the challenges: Earlier in the month, the Cyberspace Administration of China, which reports to the country’s top leaders, ordered Chinese app stores to remove the rideshare giant Didi Global from their platforms. The regulatory body also said that “the overseas listing system for domestic enterprises” will be updated, while it will also tighten restrictions on cross-border data flows and security. In some ways, the “Big Tech/Big Data” oversight being beefed up in China mirrors some of the same concerns being signaled here in the U.S., as the Biden administration has reportedly sought ways (by executive order, for instance) to curb Big Tech’s competitive practices and consolidation.
Clearly, then, the bead is being drawn on Chinese firms that aim to list, or are listed, on exchanges beyond the domestic ones. The details disclosed in U.S. SEC filings may be a bit different (and perhaps a bit more detailed), though we have yet to see what new rules might govern overseas listings. The impact of any new listing rules, depending on whether these smaller firms must get regulatory approval before moving ahead, might be seismic.
CNBC reports that there are roughly 250 Chinese firms listed on U.S. exchanges, which have a market cap of $2.1 trillion. That wave of listings has done much to boost the numbers of Chinese billionaires minted as their firms have gone public.
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