ByteDance took a different approach from Didi, shelving offshore IPO intentions after Chinese regulators warned about data security www.wsj.com/articles/bytedance-shelvedipo-intentions-after-chinese-regulators-warned-about-data-security-11626078000
ByteDance shelved offshore IPO plans of TikTok after Chinese regulators warned about data security. www.wsj.com/articles/bytedance-shelvedipo-intentions-after-chinese-regulators-warned-about-data-security-11626078000?st=mwu51079t3jfh80&reflink=desktopwebshare_twitter via @WSJ #TikTok #IPO
Ant... Alibaba...Didi... ByteDance next? Sources tell me worries are growing over the TikTok parent in light of China tech crackdown. Likely to delay IPO and could see valuation haircut. Hearing it's currently valued at $450b or more in secondary market 🤯
HONG KONG -- Three years of efforts by two U.S. presidents to crack down on Chinese access to the world's largest capital market are getting a hand from unexpected quarters: Beijing.
Warnings from the top echelons of China's government of tighter oversight of data security and overseas listings, along with slowing growth amid increased regulation, have dramatically raised the stakes for mainland companies with shares traded in the U.S. -- sparking a sharp investor sell-off and threatening forthcoming offerings.
U.S.-listed Chinese stocks, as measured by the Nasdaq Golden Dragon China Index, are trading at their biggest discount to general U.S. stocks since at least September 2016 -- exceeding levels seen even at the heights of trade war under former President Donald Trump.
The index, which tracks 98 Chinese companies listed in the U.S., has fallen 10.5% since Jul. 2, when the Cyberspace Administration of China admonished Didi Global for breaching national security with its data management. That came just two days after shares in Didi, the biggest Chinese ride-hailing company, started trading in New York following a $4.4 billion IPO.
The spread between the two benchmarks has also surged at the fastest pace in at least five years -- indicating how quickly sentiment has changed and how markets have been taken aback.
Beijing has so far been hazy on some of the details of its clampdown but on Saturday it said companies holding data on more than 1 million users must now apply for cybersecurity approval when seeking overseas listings -- a move that would encompass nearly all offshore IPO aspirants.
Analysts detect a motivation to reduce exposure to the U.S. and its regulators in a bid to safeguard data and curb the reliance of mainland corporates on the world's largest capital market for funding. As of May 5 there were 248 Chinese companies listed on U.S. exchanges, with a total market capitalization of $2.1 trillion, according to the U.S.-China Economic and Security Review Commission.
"China has long desired self-sufficiency in a host of industries and it would be reasonable to think capital markets is part of the process," said market analyst Fraser Howie, co-author of the book "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise".
"China will prefer companies to list onshore or at least in Hong Kong as they'd want to be the regulator of their own companies. As for already listed companies, the growth story is behind them and investors are rerating the stocks already."
Some of the financial consequences of Beijing's curbs on its own "big tech" sector -- which first ratcheted up in November when China regulators forced financial services provider Ant Group to suspend what was shaping up to be the world's largest initial public offering -- have been dramatic.
Jack Ma-founded Alibaba Group Holding, which owns a third of Ant, has lost $300 billion, or a third of its market value since then. Other major Chinese companies Tencent Holdings and online retailer JD.com have ceded a combined $310 billion since their stock peaked in February.
And Didi has crashed in market value by $11 billion from a closing high on July 1 after the cyberspace regulator's broadside.
The focus is also on which companies may now rethink a U.S. listing. On Thursday, Chinese medical data group LinkDoc Technology called off its U.S. IPO at the last minute, two people familiar with the transaction said. It had been set to raise up to $210 million.
The trade war that then-U.S. President Trump unleashed in 2018 forced China to unveil a path to self sufficiency in key industries including technology and semiconductors last year. Towards the end of his tenure, Trump announced investment bans on a string of Chinese companies and endorsed rules to delist mainland companies.
Under a law passed last year, Chinese companies risk being kicked off American exchanges by 2023 if U.S. regulators are not permitted to review their audit records. Beijing forbids such reviews on national security grounds.
Current U.S. President Joe Biden has largely maintained pressure on Beijing. Last month, refining action started under Trump, he signed an executive order prohibiting U.S. residents and entities from investment in 59 Chinese companies, alleging ties to the Chinese military. And Chinese telecom companies including China Mobile have been delisted from American exchanges.
On Friday, the U.S. added 23 Chinese enterprises to its economic blacklist. Of these, 14 were included for alleged involvement in human rights abuses in the Xinjiang region, five for their ties to China’s military, and the rest for transacting with companies that had already been sanctioned.
Now, it seems that the monthslong Chinese regulatory crackdown is also having a chilling effect.
"The regulatory strong hand has deterred investors from investing in Chinese stocks," said Jack Siu, chief investment officer for Greater China at Credit Suisse. "A major topic of discussion among the investor community is when the regulatory pressures will ease. The earliest is likely to be the last quarter, but it could extend to the first half of 2022. It is not going away soon."
Over 30 companies are being investigated by various regulatory agencies and last week China's State Administration of Market Regulation announced 22 antimonopoly fines of 500,000 yuan ($77,000) each for completing acquisitions without regulatory approval.
If China does want to put more pressure on U.S.-bound companies, one way to do so would be to address what is known as "variable interest entities" -- the opaque corporate structures that have been the main vehicle for Chinese listings overseas.
Using VIEs, Chinese companies incorporated and licensed onshore can transfer profits to an offshore vehicle with shares owned by foreign investors. This has enabled Chinese technology companies to work around controls on foreign ownership.
Curbing the use of VIEs could kill off IPOs in the U.S., where mainland companies have attracted high valuations.
The barrage of regulation has also eroded the growth outlook for mainland technology companies, making them less alluring for investors. For instance, after its IPO was suspended Ant was forced to become a financial holding company, making it subject to capital requirements similar to those for banks. This and other requirements have slashed its profit outlook and its valuation.
"The technology sector becomes a bit less [about] growth and a bit more [about] value with earning growth slowdown looming," said Frank Benzimra, head of Asia equity strategy at Societe Generale. "Some value opportunities will emerge only when the market gets indications that the regulatory overhaul has been implemented. But investors need to bear in mind [that] a major objective set in the 14th five-year plan in March is reaching technology independence, which means big tech firms have a big role to play."
Global investors are still backing Chinese bonds and companies in the fields of renewable energy and electric vehicles that promote sustainability. So far this year, inflows into China bonds have amounted to $83 billion. Foreign ownership of the nation's bonds grew to a record 3.68 trillion yuan in May, according to regulatory data.
Investors have also bought a net $27 billion of Chinese equities via a scheme that links the Hong Kong, Shanghai and Shenzhen exchanges, Hong Kong stock exchange data show.
That means true decoupling is a long way off, according to analysts including Benzimra and Tianlei Huang, research fellow at Peterson Institute for International Economics
"It is hard to imagine that the tightening of rules on overseas listing will lead to any significant drop of U.S. holdings of Chinese securities," Huang said. "Even if obtaining a U.S. listing gets significantly more difficult for Chinese companies because of the clampdown, listing in Hong Kong or Shanghai is still a viable option and U.S. investors will still have access to those mainland companies in the two exchanges."
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12 July, 2021 - 09:34pm
12 July, 2021 - 08:30pm
WASHINGTON, July 12 (Reuters Breakingviews) - ByteDance has shelved its planned initial public offering, the Wall Street Journal reported on Monday. The TikTok owner hit pause on listing in New York or Hong Kong after Beijing regulators raised concerns about data security. Meanwhile, companies in the People’s Republic have been arguing in Washington that they are independent firms, free from Chinese government control. That's a hard sell right now.
Chinese companies have sometimes been slow to do the necessary wooing of lawmakers . Video surveillance outfit Hikvision (002415.SZ) was one of dozens the Washington government blacklisted in June, preventing U.S. investment. One of the firm's lobbyists, Mercury Public Affairs, recently hired a former Treasury official.
The Middle Kingdom’s hard line on Chinese companies raising capital overseas read more is hitting their D.C. credibility in other ways, too. Senator Marco Rubio wants the Securities and Exchange Commission to probe Didi Global’s (DIDI.N) U.S. IPO after news of a Beijing investigation wiped billions of dollars off the newly public company's market value. It's a tough backdrop for businesses trying to persuade U.S. politicians they, not Beijing's apparatchiks, control their own destiny. (By Gina Chon)
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Europe is increasingly looking like an also-ran in the global competition for initial public offerings. A string of companies recently cancelled their European debuts. Trendier groups like Soho House, Turkish e-commerce firm Hepsiburada (HEPS.O) and Italian vaccine vial maker Stevanato (STVN.N) have meanwhile opted to migrate across the pond. A vicious cycle is forming.
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12 July, 2021 - 10:22am
The Chinese tech giant, whose apps also include TikTok’s Chinese twin Douyin and the news aggregator Toutiao, had kicked off initial preparations for an IPO of its domestic assets, Bloomberg News reported in April. ByteDance’s considerations about going public had been in flux even before Didi Global Inc.’s IPO in New York sparked a regulatory backlash, and the company is approaching any potential IPO cautiously, people familiar with the matter said Monday, asking not to be identified discussing private information.
ByteDance meets regularly with Beijing regulators about a range of issues, including data security, and the March discussions were part of that ongoing process, according to one person. Founder Zhang Yiming did not attend the March meetings, the person said. A ByteDance representative declined to comment.
Companies seeking to raise capital in overseas markets are now facing greater scrutiny, after China on Saturday proposed new laws that will require virtually all firms heading for an IPO outside of China to undergo a cybersecurity review. Didi had gone ahead to list in New York in June, even though Bloomberg News reported regulators asked it as early as three months ago to delay the debut. Authorities have since commenced a cybersecurity probe into the firm and removed its services from Chinese app stores.
The Wall Street Journal earlier reported the March meetings with regulators, adding that ByteDance put on hold indefinitely its intentions to list offshore earlier this year after Chinese officials told the company to address data-security risks. Regulators never called outright for a delay to ByteDance’s possible share offering, but they were concerned about data-security compliance by its apps in the country, according to the report.
The Cyberspace Administration of China and the China Securities Regulatory Commission didn’t respond to the Journal’s requests for comment.
Trading of ByteDance’s shares in private markets have held steady at about $330 billion over the past month, according to a person with direct knowledge, although asking prices for the stock have been higher.
ByteDance had been considering plans to raise at least several billion dollars from a listing of its Chinese assets, Bloomberg reported in April. At that time, it was choosing between Hong Kong and the U.S. as its listing venue. The company in March hired Shou Zi Chew from Xiaomi Corp. as its CFO, fueling speculation an IPO was imminent.
The company later issued a statement saying it didn’t meet the conditions to go public and currently didn’t have any such plans.
(Updates with more details about meeting in third paragraph, ByteDance’s latest valuation in fourth paragraph)
The surprise probe piles on the scrutiny of Didi over concerns ranging from antitrust issues to data security.
China has expanded a cybersecurity probe beyond Didi Global to include two other recent US listers, shaking investors.
China wants control over the vast amounts of sensitive data that Didi collects from half a billion annual active users.
Rules for overseas listings will be revised, China’s State Council said in a statement days after Didi Global’s IPO.
12 July, 2021 - 06:49am
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WSJ News Exclusive | ByteDance Shelved IPO Intentions After Chinese Regulators Warned About Data Security
12 July, 2021 - 03:20am
The Beijing-based social-media giant, last valued at $180 billion in a funding round in December, had been weighing an initial public offering of all or some of its businesses in the U.S. or Hong Kong, according to people familiar with the company’s plans.
But the company’s founder, Zhang Yiming, decided it would be wiser to put the plans on ice in late March, after meetings with cyberspace and securities regulators in which they asked the company to focus on addressing data-security risks and other issues, the people familiar with the matter said.
The company had other reasons for delaying the listing. It didn’t have a chief financial officer at the time, a person close to the company said.
ByteDance’s cautious approach contrasts with that of Chinese ride-hailing giant Didi Global Inc., which runs the country’s ubiquitous car-hailing app. Didi pressed ahead with listing plans in the U.S. despite suggestions from the cyberspace administration not to amid concerns that some of its data could fall into foreign hands, The Wall Street Journal reported.
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11 July, 2021 - 09:40pm
2. Is this about limiting foreign ownership?
Not so much. China already has strict rules on foreign investment in certain industries such as internet companies, banks, miners and private education firms. VIEs were a legally shaky workaround that enabled Chinese firms to tap capital in foreign markets without giving away control. Some Chinese tech firms do have foreign backers, dating back to when they were scrappy upstarts. Softbank Group Corp. and Uber Inc. for instance hold sizable stakes in Didi, while Naspers Ltd. has a 29% stake in Tencent Holdings Ltd., making it the single biggest shareholder. The latest move by China’s Communist Party is aimed at ensuring sensitive data controlled by companies can’t be accessed by foreign regulators. More broadly, it’s part of campaign to impose stricter controls over the nation’s technology firms, many of which have near-monopolies in their fields and vast pools of user data -- the new oil of the digital economy.
3. Why is China doing this now?
Years of a light touch approach to technology companies enabled them and their billionaire founders to grow rich, influential and powerful. Too powerful, it seems. Since last year, President Xi Jinping’s government has acted to rein in these corporations -- from derailing Ant Group’s blockbuster IPO to new rules curbing monopolistic practices across the internet landscape. In March, Xi warned that Beijing would target so-called “platform” companies that had amassed data and market dominance. This term covers a range of firms that offer services to hundreds of millions, from Didi to food delivery giant Meituan and e-commerce leaders like JD.com Inc. Didi’s decision to proceed with its U.S. IPO despite reported reservations from China’s regulators was likely seen in Beijing as another example of how some technology companies viewed themselves as beyond the reach of the Communist Party. The new rules would effectively prevent such an incident from happening again.
4. What is the U.S. doing?
Under a law passed under the Trump administration in December, Chinese companies may face delisting if they refuse to hand over financial information to American regulators. The U.S. Securities and Exchange Commission in March began implementing the new rules, which require U.S. inspection of accounting work done for Chinese companies. China has long refused to let the U.S. Public Company Accounting Oversight Board examine audits of its firms, citing national security. U.S. lawmakers counter that such resistance exposes investors to risks such as frauds, and that it makes little sense that Chinese companies have been permitted to raise money in the U.S. without complying with American securities rules. Concern over audit materials, which could contain data such as user information and communications between the company and government departments, were one of the reasons Chinese officials wanted Didi to delay its IPO, the Wall Street Journal reported.
5. What’s the impact been so far?
Chinese shares traded in New York and Hong Kong plunged in July as shareholders price in increased scrutiny from Beijing. Some companies have shelved or delayed their U.S. IPO plans, according to reports, including health-care firm LinkDoc Technology Ltd. and Ximalaya Inc., an audio sharing platform. Valuations are likely dropping in private markets, with speculation focusing on ByteDance Ltd. Fidelity Investments for instance halved its estimate for Ant Group after its Hong Kong and Shanghai listings unraveled in late 2020. For Didi, the penalty for going against the wishes of Beijing was severe. The stock lost more than 30% in four days, falling below its IPO price. Shareholders sued the company, as well as its directors and underwriters, claiming Didi failed to disclose talks it was having with Chinese authorities about its compliance with cybersecurity laws.
More stories like this are available on bloomberg.com