SHANGHAI/HONG KONG, April 30 (Reuters) – A rare regulatory nod for a Chinese company to seek a Nasdaq listing has been deemed extra special as the software maker is not incorporated on the mainland, evidence that such firms can still avail themselves of U.S. capital markets.
Last month, sources said Chinese authorities had told some such companies, known as red-chip firms, that they should change their domicile back to China before going public in Hong Kong. That sparked fears that there could be a blanket ban on red-chip listings outside the mainland.
Red-chip firms are registered abroad, mainly in tax havens, but hold assets and businesses in China via equity ownership.
DSC Holdings, which provides operating systems for used car dealers in China, is incorporated in the Cayman Islands, according to former shareholder Warburg Pincus.
A CASE BY CASE APPROACH
The approval last week is the China Securities Regulatory Commission’s first nod to a U.S. listing application in four months, and only the third over the past 12 months.
“It’s a pretty positive signal,” said Ray Zhan, a Shanghai-based partner at law firm Dentons, adding that there had also been signs that the commission had resumed vetting of other applications.
“It also shows the CSRC is not taking a one-size-fits-all approach toward corporate structure, and will vet listing candidates case by case,” he added.
DSC Holdings, whose operations are based in China’s eastern Zhejiang province, is backed by investors including Ant Group and Primavera, according to its website.
Yang Chongyi, a financial advisor who helps Chinese firms list in the U.S., said that the approval did not signal a return to the heyday of U.S. listings by Chinese companies.
“The path is there, but the rules have changed,” Yang said, adding that only companies with a clear strategy and a strong track record in compliance would be able to tap the U.S. market.
Listing outside mainland China in places like Hong Kong and the U.S. has been a popular option for firms seeking to tap a deeper pool of foreign capital and avoid cumbersome rules and regulations at home.
The option did lose some of its allure, however, after Beijing introduced new rules from March 2023 that required all Chinese firms wanting to list in foreign markets to first seek approval from mainland authorities.
U.S. listings in particular have become harder amid heightened geopolitical tensions between Washington and Beijing, which has helped spur a boom in Hong Kong IPOs with funds raised surging 231% to $37 billion last year.
Currently, there are only about 50 mainland Chinese companies awaiting regulatory approval to list in the U.S., compared with more than 200 queuing for permission to sell shares in Hong Kong, according to the commission’s data.
(Reporting by Samuel Shen and Selena Li; Editing by Edwina Gibbs)
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