Chinese Companies Seek Alternative Capital Raising Options Through 2021

DigitalCFO Newsroom | 27 October 2021

Capital markets activity for Chinese companies picked up since mid-2020 as markets rebounded from the pandemic

  • Going-private transaction deal value for U.S.-listed Chinese companies will likely increase in the months ahead to get ahead of regulatory uncertainty
  • SPAC listings proved as an effective channel for Chinese companies to tap the global capital markets

Duff & Phelps, A Kroll Business, the world’s premier provider of services and digital products related to valuation, governance, risk and transparency, released its annual China Transactions Insights report for Fall 2021 that covers Chinese firms’ initial public offerings (IPOs) in the U.S. and Hong Kong, special purpose acquisition companies (SPACs), going-private transactions and cross-border investment.

The report highlighted a moderate rise in going-private deal value with U.S.-listed Chinese companies announced or proposed transactions, representing over $12 billion (bn) in total market capitalization as of August 31, 2021. Five proposed go-private deals that were announced but not yet closed (at the publish date of the report), include the privatization of a large healthcare services provider. Other notable completed privatization transactions that occurred through August 2021, include a large online media company and online education business.

Commenting on the trend, David Lu, Head of APAC Corporate Finance at Duff & Phelps, A Kroll Business, said: “The trend of going private is not a new phenomenon for Chinese companies, but the drivers behind privatization have certainly shifted. Historically speaking, numerous Chinese firms exited the U.S. markets to capture arbitrage and stronger valuations in domestic Chinese markets and Hong Kong. This year, however, we see firms evaluating alternatives due to incumbent regulatory uncertainties. Privatization is one route for U.S. listed Chinese firms to create certainty for their investors and employees who want to avoid the “wait-and-see” approach when it comes to audit and accounting disclosures or new laws around privacy and security.”

Other data in the report underscores that while Chinese firms are still listing in the U.S., with 50 companies completing IPOs worth $14.8 bn in aggregate funds raised through to August 2021, Hong Kong completed 51 Chinese IPOs in the same period, with total funds raised worth $19.0 bn.

“The combination of regulatory uncertainties and the tightening of rules around data and privacy means Chinese companies are likely to scutinze their capital raising options, like dual listings, privatization and SPACs, as ways to tap global capital markets and to manage some of the challenges they may face,” Lu added.

The China Transactions Insights report is an annual report that is compiled and published by Duff & Phelps Corporate Finance, A Kroll Business, to track and monitor Chinese companies and their transaction activities.

The report also highlights:

  • The two largest U.S. IPOs of Chinese companies were both from the transportation sector. DiDi Global Inc. and Full Truck Alliance Co. Ltd raised approximately $4.4 bn and $1.6 bn in funds, respectively.
  • IPOs of Chinese companies in Hong Kong dropped significantly compared with 2020 figures. Despite this, Hong Kong gained 51 Chinese IPOs, with total funds raised worth $19 bn. Two Chinese companies that completed IPOs worth $3 bn in funds raised, included livestreaming and online marketing service provider Kuaishou Technology and supply chain solutions and logistics service provider, JD Logistics.
  • Despite strong IPO activity for Chinese companies in the U.S. and Hong Kong through August 2021, uncertainties remain due to stricter policies and regulations for offshore listings, with implications to future IPO pipeline.
  • Acquisition via SPAC has been an effective way for Chinese companies to enter the global capital markets without drawn-out road shows and underwriting expenses. Further opening-up for SPACs announced by the Hong Kong Exchanges and Clearing (HKEX) and the Singapore Stock Exchange (SGX) will continue to be attractive to Chinese firms.

For further details on the China Transactions Insights report, please click here.

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