Chinese tech start-ups pull IPO plans as Beijing tightens scrutiny

HONG KONG • A growing number of Chinese tech start-ups are cancelling plans to list on Nasdaq-style markets at home with some eyeing Hong Kong share sales instead, as regulators tighten scrutiny of listing applicants after the halting of Ant Group's US$37 billion (S$49.6 billion) float.

Over 100 companies have voluntarily withdrawn applications to list on Shanghai's Star Market and Shenzhen's ChiNext since Ant's termination of its initial public offering (IPO) in November, according to Reuters' review of exchange filings.

The unprecedented withdrawals come against the backdrop of sharply intensified grilling of listing prospects by regulators, leading to IPO delays, outright rejection or even penalties, say bankers and company executives.

The scramble to withdraw IPO applications raises questions over the quality of China's IPOs and robustness of due diligence by underwriters.

China launched Star nearly two years ago with a US-style registration and disclosure-based IPO regime in a bid to dissuade its tech start-ups from tapping offshore bourses, and to fast-track listings. The reform extended to ChiNext last year.

But Ant's IPO, which was suspended after regulators expressed concerns about some parts of its businesses, shifted the watchdog's attention towards risk control, said a banker with direct knowledge of regulators' thinking.

"Regulators are demanding more stringent due diligence from underwriters," said the banker.

Sponsors, or the lead IPO underwriters, are withdrawing some applications for fear of being punished, he said, as "no project is impeccable".

The Star Market became the world's fourth most popular listing venue last year, with IPOs raising US$20 billion. Its ranking fell to the seventh in the first quarter, according to Refinitiv data.

Loss-making tech unicorns that have shelved their listing plans include Yitu, Unisound AI Technology and Shenzhen Royole Technologies.

Founding partner Ming Liao of Beijing-based Prospect Avenue Capital said many Chinese start-ups now face a bumpy road towards IPOs, with some struggling to "demonstrate their potential for sustainable growth".

Bankers say bourses are now launching on-site inspections, poring over IPO filings and bombarding sponsors with more questions than usual. Senior executives of a start-up must disclose their personal bank accounts and explain large transactions.

As a result, the average waiting time has risen from six months to 12 months, creating a backlog of over 100 companies waiting to list on Star, said a banker.

REUTERS