Are Chinese IPOs back in the U.S.?

Written by Kapronasia || February 22 2023

To answer the question posed in the title, yes and no. Yes, Chinese sensor maker Hesai Group recently raised US$190 million in the largest U.S. IPO by a Chinese firm in 15 months, but it may have been a one-off event given investors are especially eager for exposure to the red-hot electric vehicle (EV) market. No, we do not think this yet portends a reversal of the slow deal pipeline for Chinese companies in U.S. capital markets. The underlying U.S.-China relationship remains too troubled for that kind of dramatic shift.

Thus far, three Chinese companies have gone public in the U.S. this year. In addition to Hesai, QuantaSing Group raised US$40.63 million on January 24 and Lichen China raised US$16 million on February 3. While some analysts have used this trio of listings to argue that the worst is over and Chinese companies are now returning to the U.S. IPO market, we see things differently.

Indeed, the existing baseline is so low that almost any market activity is an improvement. According to Wind Information, only six Chinese firms had listed in the U.S. since the Didi Chuxing debacle in mid-2021. With that in mind, three listings in less than two months looks downright fabulous. But keep in mind these deals are all well below US$1 billion, and that the biggest deal since Didi’s failed debut has been the biotech company LianBio, which raised $334.5 million in Nov. 2021.

We would need to see some larger-sized deals, at least US$500 million, to be convinced that Chinese companies were returning to U.S. capital markets in earnest.

Drew Bernstein, co-chairman of audit firm Marcum Asia CPAs LLP, told CNBC earlier this month that his firm is working with about 50 companies — mostly China-based — that plan to list in the U.S. It’s “probably the strongest pipeline our firm has had in its history,” he said.

More likely is that Chinese firms eager to raise capital outside of Greater China will do so in Europe. Nine companies have gone public in Zurich since the end of July, raising a total of $3.2 billion (CHF2.98 million) — far exceeding the total amount Chinese companies raised in the US in all of 2022.

Under the terms of the stock connect arrangement, the Swiss government and SIX have agreed to fully recognise Chinese accounting and auditing principles, thereby avoiding potential tussles over access to company books. The cross-listing scheme also enables companies to raise money in stable currencies — either Swiss francs or the greenback — while Switzerland’s status as a permanently neutral country provides added reassurance for Chinese companies compared with markets more closely aligned with the US.