U.S. passes law to delist Chinese companies from its stock exchanges
Dec-08-2020 By : fcccadmin
The U.S. House of Representatives has passed the Holding Foreign Companies Accountable Act, which aims to delist Chinese companies from U.S. stock exchanges if they do not comply with auditing oversight rules after three years. However, doing so might force them to break Chinese law, leaving many no choice but to delist. Major Chinese companies such as Alibaba and Tencent are listed in the U.S. The Holding Foreign Companies Accountable Act was introduced in 2019 by Senator John Kennedy, Republican of Louisiana, to protect American investors from investing in Chinese companies that lacked transparency. The United States’ auditing supervisor, the Public Company Accounting Oversight Board (PCAOB), has been battling China for decades over its resistance to supply audits of publicly-traded companies. Beijing has cited state-secret laws as the reason for not complying. “Enforcing disclosure laws here would be a welcome and overdue step,” said Derek Scissors, Researcher focusing on U.S. economic relations with Asia at the American Enterprise Institute. “Transparency is more important than the profits its critics are shielding,” said Scissors, referring to resistance to the legislation, including arguments that it would harm investors and capital markets in the U.S. “It is not a good-faith argument to say transparency in our investment in the People’s Republic of China is bad for the country,” he said.
The outgoing Trump administration is still waging a concerted effort to get tough on China, both as part of its legacy and to try to put in place policies that may be difficult for President-elect Joe Biden’s administration to unwind. “The House joined the Senate in rejecting a toxic status quo,” Kennedy said. “Communist China is right now using U.S. stock exchanges to exploit American workers and families – people who put their retirement and college savings in public companies.” Moments before the bill passed, its House sponsor, California Democrat Brad Sherman, said: “This bill is not anti-China, and it is not designed to prohibit the trading of Chinese companies. Rather it provides a three-year window during which we expect China will enter into a reasonable agreement with the SEC and the PCAOB, so that we have the additional level of protection for investors that we expect and have demanded since we passed the Sarbanes-Oxley bill in 2002.”
The lawmakers’ support for the regulation showed the strong bipartisan agreement in cracking down on U.S.-listed Chinese companies, and it was a blow to these firms, which have sought capital and prestige from U.S. markets. More than 210 Chinese firms with a combined market capitalization of about USD2.2 trillion were listed on major U.S. stock exchanges as of October, according to the most recent congressional report by the U.S.-China Economic and Security Review Commission. Separately, the U.S. Securities and Exchange Commission (SEC) is pushing ahead with a similar but less stringent proposal that would require the Chinese companies to use auditors overseen by the United States. Non-compliant companies, however, would still be allowed to trade over the counter.
The SEC is aiming to introduce the regulation for public comment this month. Officials have been drafting the proposal since August, urged by the President’s Working Group on Financial Markets – a group that includes SEC Chairman Jay Clayton and Treasury Secretary Steven Mnuchin. But pushing the regulation forward just weeks before the administration leaves office is unusual because agencies typically stop issuing major new policies during a presidential transition period. Making the deadline even more difficult, Clayton has announced plans to step down by the end of the year and will be gone before any regulation is finalized. That would leave completing the work to a SEC chief chosen by Biden. “The SEC has had six months since Senate passage to propose an alternative; their time has passed,” said Scissors. It is unclear whether the passage of the bill will end the SEC’s effort to introduce its regulations. But it does mean Chinese companies will likely face a harsher law, if signed, that could suspend their stocks from trading on American exchanges, giving them little maneuverability.
The legislation requires Chinese companies to be in compliance with the U.S. audit rules within three years. It is likely “for another bilateral deal to be made long before the three-year deadline” is reached, said Scissors. The SEC and the stock exchanges have acknowledged the long-standing problems with publicly-traded Chinese companies, but they cautioned that cracking down on the listings could lead to an exodus of firms that account for hefty listing fees and revenue. They have been advocating for a market-driven approach instead that could include more stringent oversight of U.S. arms of auditing firms such as Deloitte, PwC, Ernst & Young and KPMG, the South China Morning Post reports.
The need to list in the U.S. has diminished for Chinese companies as the stock markets in Shanghai and Shenzhen have together become a backbone of the Chinese mainland’s economy. Total combined market capitalization stood at about CNY77 trillion, up 16 times compared with the end of 2000, making China’s A-share market the world’s second-largest after the U.S. In 2019, companies on the A-share market reported revenue of CNY50.47 trillion, equivalent to more than half of China’s GDP. Those companies cover all 90 industries in the Chinese economy and account for more than 70% of China’s top 500 enterprises. Listed companies in the mainland also turned in better business performances than many U.S. listed companies. In the first three quarters, the profitability of CSI 300 index companies – the 300 largest and most liquid A-share stocks – only slipped by 7.6% on a yearly basis, while the net profits of S&P 500 companies slumped by about 40%, the Global Times adds.
Ant’s dual IPO, predicted to become the world’s biggest, postponed
Nov-10-2020 By : fcccadmin
The initial public offering (IPO) of Ant Group in Hong Kong and Shanghai – which had been predicted to become the world’s biggest – has been postponed on orders of the China Securities Regulatory Commission (CSRC) and other regulatory authorities after subscriptions were completed and less than 48 hours before trading was expected to begin. The move signals tightening regulation on China’s booming fintech business. Ant Group is being required to clarify its business model, financial innovations, measures to protect users’ private data, and other issues. It is also possible that it would need to restructure its business for the IPO to go ahead. Regulatory tolerance has led to an outpouring of innovations in fintech, but regulators are now taking a tougher stance. In a sign of China’s fintech prowess, the nation’s mobile payment market totaled USD414 billion in 2018, while the marketplace for mobile payments was only worth USD64 billion in the U.S., according to a report by China International Capital Corp.
Analysts told the Global Times that there may actually be too much innovation, which could lead to a worst-case scenario in which consumers take on too much debt, especially amid any economic downturns, with a surge in bad loans. In a commentary, Guo Wuping, Director of the Consumer Rights Protection Department at the China Banking and Insurance Regulatory Commission (CBIRC), wrote that compared with licensed financial institutions, fintech firms rely more on behavioral data such as shopping, transactions and logistics, and they are more dependent on borrowers’ consumption and loan payments, so it is hard for them to evaluate creditworthiness. Some low-income people and young consumers might get mired in debt traps, he added.
Investors who felt “fortunate” to get shares in Ant Group’s record-smashing IPO are now worried about the fin-tech company’s dual listing, as the surprise suspension announcement prompted retail investors to seek swift refunds of their bids. Some fear that tighter scrutiny of the Chinese fin-tech giant might affect the sector’s growth prospects.
The highly anticipated dual listing proved to be a huge magnet for retail investors in both Hong Kong and Shanghai. In Hong Kong, 1.55 million individual investors, roughly one-fifth of the city’s population, applied for Ant Group’s shares with HKD1.3 trillion, or an oversubscription of 389 times the shares on offer. The retail portion of the listing in Hong Kong was underpinned by HKD500 billion in total margin financing by the city’s banks and brokerages. In Shanghai’s STAR Market, Ant Group’s offering was oversubscribed 870 times, drawing a record CNY19.05 trillion of bids from Chinese mainland retail investors.
“The past few days were the darkest and most difficult in the history of Ant Group and Alibaba,” said Ant Group Executive Chairman Eric Jing. It is estimated that Ant Group’s listing will be delayed for about half a year. The odds are small that Ant’s IPO will be put off indefinitely, as China’s supervisory toughening aims to protect investors and it is not very likely that the regulators intend to kill the listing, Wu Jinduo, head of fixed income at the research institute of Great Wall Securities, told the Global Times.
The suspension aims to better safeguard capital market stability and protect investors’ interests, Chinese Foreign Ministry spokesperson Wang Wenbin told reporters. Tougher rules recently announced by the regulators don’t target any specific online financial platforms, Wu added, noting that the nation’s financial system has over the years been striving to contain risks, with efforts to clamp down on shadow banking in 2013 and combat risks stemming from the problematic peer-to-peer (P2P) online lending schemes. The regulators have plans to strengthen oversight of Ant Group, particularly on the firms’ cash cows – its credit-scoring platforms that channel loans from banks and other institutions to customers across the country. Draft rules for online micro-lending unveiled by the People’s Bank of China (PBOC) and the CBIRC require platform operators to provide a minimum of 30% of the funding for loans. This would be a challenge for Ant Group to remain compliant, as its stock prospectus revealed that about 2% of its loans are on its own balance sheet, with the rest of the credit balance financed by partner financial institutions or securitized, the Global Times reports.
The IPO suspension could have negative effects on the whole Alibaba ecosystem and boost competitors JD.com and Pinduoduo, which has become a particularly worrying rival to Alibaba. The social e-commerce platform has been a rising star among U.S.-listed Chinese online retailers. In its fiscal second quarter ended on September 30, Alibaba’s revenue jumped 30% to CNY155 billion, slightly above market expectation. The company had 881 million monthly active users in the second quarter. Alibaba holds a 33% stake in Ant.
Chinese shares drop nearly 9% as coronavirus bites
Feb-05-2020 By : fcccadmin
Stock markets in China have seen the biggest daily fall in five years as traders rushed to sell amid continued fears about the impact on the global economy of the coronavirus epidemic, the Guardian reports. The benchmark Shanghai composite index fell 8.7% at the opening on February 3 following the 10-day closure for the Chinese New Year holiday. The Shenzhen composite was off 9.1% and dangerously close to the daily maximum permitted fall of 10% after which trading is suspended. The yuan fell to below seven-to-the-U.S.-dollar for the first time since December.
Bloomberg said it was the worst fall on the Chinese markets since 2015. There was also heavy selling across the rest of Asia Pacific, with the Australian benchmark S&P/ASX200 index leading the way downwards with a fall of 1.64%. The Nikkei in Tokyo was also down 1% in early trading and the Seoul market was off 1.5%. Hardest hit in Australia was the energy sector, with the index down 3.77% after 15 minutes of trade as the oil price continued to suffer from the prospect of a prolonged slowdown in the Chinese economy. Safe havens of gold and government bonds continued to benefit as investors shied away from risk.
In a sign that the worse might possibly be over, the Hang Seng Index, which posted heavy losses during the Spring Festival holiday while its mainland counterparts were closed, swung back into positive territory at market close on February 3. Following the plunge of the Chinese A-share markets, global markets recovered the next day. Despite more cases of the coronavirus being confirmed, stock markets stabilized on hopes that there would be a repeat of what happened during the SARS outbreak in 2002-03, when share prices quickly regained all their lost ground once the virus had been contained. Despite the market plunge, a net total of nearly CNY18.2 billion in foreign capital flowed into the A-share market via stock connects between the mainland and Hong Kong bourses, the second-highest amount in history, pointing to global investors’ confidence in the long-term prospects of the Chinese economy.
China has announced measures to ensure ample liquidity and reduced lending rates to companies affected by the outbreak. Banks and financial institutions are encouraged to increase lending to support the real economy. Beijing also announced that it would waive tariffs – for the period of January 1 to March 31 – on all imports of goods and equipment needed to help fight the coronavirus. Imports of donated goods, including ambulances and vehicles used to spray disinfectant, and disinfection products, would also be exempt from import taxes. Foreign retailers and restaurant chains, including Apple Stores, Ikea, McDonald’s and Starbucks, are closing several or all of their outlets in China at least until February 9.
HKEX drops bid to buy LSE
Oct-08-2019 By : fcccadmin
Hong Kong Exchanges and Clearing (HKEX) has dropped its bid for the London Stock Exchange (LSE). It faced a deadline of October 9 to raise its original bid, which had been rejected by LSE and will now not be able to make new bid for the coming six months.”The Board of HKEX continues to believe that a combination of LSE and HKEX is strategically compelling and would create a world-leading market infrastructure group,” HKEX said in a regulatory statement. “The Board of HKEX is disappointed that it has been unable to engage with the management of LSEG in realizing this vision,” it added.
Calls for HKEX to raise its bid had faced opposition. “I will definitely oppose HKEX from raising its offer for the LSE as it will become too expensive,” said Christopher Cheung, a Hong Kong lawmaker for the financial services sector, and an HKEX shareholder. Cheung and about 500 local brokerages received shares of HKEX when it was listed in 2000. But HKEX failed to convince these shareholders about the merits of a higher takeover offer. Three shareholders of the London bourse had said they could be drawn into further discussions if HKEX raised its offer price by 20% and increased the cash component. “The deal is full of uncertainties as we do not know if the regulators in the UK, U.S. and Europe will approve it, and we do not know if the combination of the two exchanges will work out smoothly,” said Cheung, who is also the Founder and Chief Executive of Christfund Securities.
HKEX on September 11 surprised the market by proposing to pay GBP83.61 per LSE share in cash and stock for the London bourse operator, valuing it at GBP29.6 billion. It was the most expensive exchange takeover offer and could have created a giant exchange that would span Asia, Europe and America. The LSE immediately rejected the unsolicited approach, saying it faced regulatory hurdles and did not make strategic sense. But HKEX had not given up and hired HSBC and UBS to lobby the shareholders of LSE directly.
“Like many shareholders, I do not feel the current offer on the table from HKEX for the LSE fully reflects the value and future potential earnings the combined entity would likely achieve. That said, were we to see a revised headline price and an improvement in the cash component from HKEX, that would likely catch the attention of LSE shareholders,” Guy de Blonay, Manager of the Jupiter Financial Opportunities Fund and a major LSE shareholder said, before HKEX decided not to raise its offer, the South China Morning Post reports.
Prices of all shares debuting on the new Star Market soar
Jul-23-2019 By : fcccadmin
The Shanghai Stock Exchange’s new Star Market (or Sci-Tech Innovation Board) got off to an auspicious start on July 22 with all 25 debutants soaring. The firms, spanning industries from microchips and biotechnology to artificial intelligence (AI), were greeted by an immediate buying spree as trading opened at 9.30 am. They all went on to record gains of at least 100% by the end of the morning session, but settled back slightly in the afternoon to close at least 84% higher.
Anji Microelectronics (Shanghai), a semiconductor manufacturer, saw its shares opening 287% higher than the initial public offering (IPO) price. Trading of Anji had to be suspended for 10 minutes at 10.20 am after the stock soared by 404% to CNY197.6 from its offering price of CNY39.19. By the close of trading, the shares were at CNY196.01, 400% higher than their IPO price. Harbin Xinguang Optic-Electronics Technology posted the smallest gain among the debutants, closing at CNY70.17, up 84.2% from the offer price. The early gains were huge across the board. By 10 am, trading in eight companies had to be suspended for 10 minutes after they surged 30% from their opening prices.
To curb over-speculation in the new market, the Shanghai exchange will halt trading for 10 minutes if a company’s stock jumps or falls 30% from its opening price during the first five days of trade. Another 10-minute suspension will be imposed if the rise or fall hits 60% during intraday trading. The new Nasdaq-style board underscores a profound shift in China’s securities sector. But for many retail investors who have lost years of savings on the stock market, the board also represents an opportunity to recoup some of their money.
Hailed as a milestone in the transformation of China’s capital markets, Star Market is expected to draw strong buying interest. The 25 companies that debuted are perceived as highly profitable and their shares were expected to soar. But the forecasted gains fell well short of the actual increases. Everbright Securities had forecast the 25 companies would see their shares surge 29% on average on the first day of trading. About four million qualified retail investors with no less than CNY500,000 in investment capital have registered to trade shares on the new market, compared to more than 100 million individual stock traders who buy and sell on the regular Shanghai and Shenzhen bourses, the South China Morning Post reports.
In total, the first trading day saw the creation of around CNY305 billion in new market capitalization on top of an initial market cap of around CNY225 billion. The average price-to-earnings (PE) ratio of the 25 firms was 53 times their 2018 earnings. By comparison, the PE ratios of previous IPOs on the mainstream Chinese boards were no greater than 23. Wild share price swings had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors. The Star Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44% on debut on other boards in China. In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20% in a day, double the 10% daily limit on other boards. Trade volume of the 25 firms reached CNY48.5 billion, the Shanghai Daily adds.
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