Performance of Chinese IPOs in the USA is contradictory. We see an obvious Chinese interest for American stock exchanges.
Over the last 2 years, Chinese companies have launched 131 IPOs in the USA. More than half were done through the shortcut of back door listings while the 63 remaining were traditional offerings. 40 of them took place last year (17 at Nasdaq), with an enthusiastic welcome worth 3.5 billion US$, 3 times 2009’s value.
Chinese companies now represent 27% of deal volume, well above the percentages of 2009 and 2008 ( 13% and 18%, respectively). The 3 most successful IPOs raised 350, 272, and 233 million US$. The future looks encouraging and financial analysts predict an increase up to 60 IPO’s/year. This optimism has different reasons. For Chinese, being listed in the USA is a matter of distinction and pride, something to exhibit as a symbol of success.
Moreover, USA listing rules are less severe than China’s. The citadel of liberalism is based on players’ transparency and integrity, even though prerequisites are often questioned. China Securities Regulatory Commission’s (CSRC) requirements are more stringent because the country is not deemed ready yet to let business ethics play a crucial role. In addition, International investors’ appetite for Chinese companies’ is strong. China economy shows no sign of slow down. At the same time, Chinese equity markets are not developed enough and Hong Kong does not provide all information required by several western investors.
Finally, Rmb revaluation against US$ is de facto happening. Thus, if the future is promising to invest in Chinese companies, an uncommon share of superficiality is unfortunately a consequence of asymmetric and imperfect information. When emerging Chinese firms, just beyond their start-up stage, launches IPO’s, there is little time and space in the West to assess their business risk and governance hidden issues.
Many analysts and business lawyers inspected the books and filed complaints with the US Security and Exchange Commission. Even the blessings of the best auditing companies are not sufficient to quiet fears and rumors of potential scandals. Post-IPO results have been volatile spreading some skepticism. For ⅓ of Chinese IPOs’, todays’ price is lower than Dec. 2010 price.
China Hydroelectric, an operator of small plants, lost 50% of its share value in 1 year. It is also easy to find success stories, but their speed and size induce a reconsideration of the approach. Risky operations need market maturity and knowledge, a new game in town that must emerge vis a vis today’s sophisticated betting.