EXCLUSIVE U.S. Regulator Freezes Chinese Firms IPOs Due to Risk Disclosure

July 30 (Reuters) – The U.S. Securities and Exchange Commission (SEC) has stopped processing registrations of U.S. initial public offerings (IPOs) and other sales of securities by Chinese companies as it develops new guidelines to disclose to investors the risk of a new crackdown by Beijing, according to people familiar with the matter.

Chinese quotes in the United States have hit a record high of $ 12.8 billion so far this year, according to data from Refinitiv, as companies rushed to capitalize on the U.S. stock market hitting daily highs.

The flow of transactions slowed significantly this month after Chinese regulators banned rideshare giant Didi Global Inc (DIDI.N) from signing up new users just days after its successful IPO. They followed with crackdowns on tech and private education companies.

SEC Commissioner Allison Lee said on Tuesday that Chinese companies listed on U.S. stock exchanges must disclose to investors the risks of Chinese government interference in their activities as part of their regular reporting obligations. Read more

The SEC has asked companies not to submit any registrations for issuing securities until it gives them specific guidance on how to disclose the risks they face in China, the sources said. It was not immediately clear how long it would take.

An SEC spokesperson did not immediately respond to a request for comment.

The SEC decision represents the latest salvo from U.S. regulators against Chinese companies, which have frustrated Wall Street for years with its reluctance to submit to U.S. auditing standards and improve the governance of companies tightly owned by founders.

The agency has come under intense pressure from US lawmakers to take a tougher line. A group of senators, including Republicans John Kennedy and Bill Hagerty, wrote this week to SEC Chairman Gary Gensler asking for “full investigations into Chinese companies listed in the United States regarding the lack of transparency.”

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Last month, the SEC dismissed the chairman of the Public Company Accounting Oversight Board (PCAOB), which failed to provide an independent audit of Chinese companies listed in the United States. The SEC is also under pressure to finalize rules on delisting Chinese companies that do not comply with US audit requirements.

Some 418 Chinese companies are listed on the US stock exchanges, according to Refinitiv. The S & P / BNY Mellon China Select ADR Index, which tracks US certificates of deposit of major Chinese companies listed in the US, has lost 22% of its value since the start of the year, up from an 18% increase in the S&P 500 index.

No major US IPO of a Chinese company is in the works after Didi, as the business community in China tries to understand regulators’ intentions.

Chinese officials said last week they would ban for-profit private lessons in basic school subjects to ease financial pressures on families that have contributed to low birth rates, sending shockwaves through the country. the country’s private education sector. It follows a massive crackdown on China’s huge internet sector, as Beijing worries about the security of the personal data of its citizens. Read more

China’s securities regulator on Wednesday held a meeting with the heads of the world’s leading investment banks to calm the nerves of financial markets, people familiar with the matter told Reuters. Official policies will be deployed more regularly to avoid high volatility in the markets, the regulator told banks. Read more

The state-run China Daily also said that Beijing remained favorable to domestic companies seeking to list overseas and that regulators would soon unveil measures to further open the capital market to foreign entities.

Some Chinese companies proactively canceled their IPOs in the United States this month. LinkDoc Technologies withdrew its offer to raise $ 211 million shortly after Didi’s problems emerged, while Hello Inc announced this week that its U.S. listing plans were on hold. Read more ,

Reporting by Echo Wang in New York, Scott Murdoch and Kane Wu in Hong Kong; additional reporting by Katanga Johnson in Washington, DC; edited by Greg Roumeliotis and Richard Pullin

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