SEC crackdown on Chinese IPOs

Chinese companies will not be able to go public in the United States unless they make new information about the risks, according to a statement released Friday morning by SEC Chairman Gary Gensler.

Why is this important: Chinese companies, and tech startups in particular, are already under increasing pressure from their own government. Now they are also in a hurry by American officials.

How we got here: SEC Commissioner Allison Lee said earlier this week that Chinese companies listed in the United States must disclose the risk of Chinese government interference in their operations, following its punitive actions against companies like Didi. .

• Just hours before Gensler’s statement, Reuters reported: “The SEC has asked companies not to submit any registrations for the issue of securities until it gives them specific guidance on how to disclose the risks. they face in China.

What Gensler said: Chinese companies seeking to register in the United States must disclose whether they: “have received or have been refused permission from the Chinese authorities to list on the American stock exchanges; the risks that such approval may be refused or revoked ”and whether such approval has been revoked.

• These companies must also allow the Public Company Accounting Oversight Board to inspect the issuer’s public accounting firm within three years. If the PCAOB is unable to do so, the company may be deregistered.
• He also “asked staff to engage in additional targeted reviews of cases for companies with significant operations based in China.”

What could that mean, at least for now: US IPOs delayed or blocked for Chinese companies, several of which are in the works after Labor Day. Ditto for secondary share offers for Chinese companies that are already public.

• It is less clear whether this would affect Chinese companies going public in the United States through PSPC. The process of registering with the SEC on such transactions is technically for PSPC, not for the company being acquired.
• For the background, Chinese companies have raised nearly $ 13 billion so far in 2021 via US stock quotes, a historic record.

The bottom line: Chinese companies, and tech startups in particular, have long been supported by both local authorities and US markets. Now their friends have become enemies.