Friday , September 17 2021

Why Chinese companies face listing and what it means


Over the past few days, the value of Chinese shares listed on the US exchange has fallen. The reason was the restrictions on the field of additional private education, as well as the high-tech companies’ activism. The sudden fall in stock prices will allow companies to exit the market in the old fashioned way: a very low value. However, other avenues are causing Chinese companies to withdraw from the American exchange.

What is removal

Listing is the removal of a company’s shares from the traded stock. Most often, it occurs after the acquisition of another company or when the value of the shares falls below the minimum level set by the exchange. After listing, stocks can still be traded on the OTC market but such trading is virtually unregulated.

What are the reasons for removal?

There are many reasons. For example, at the end of the month, the Nasdaq may exit if the bid price does not exceed $ 1. The capitalization of the TAL Education Group and the New East Education and Technology Group fell by nearly $ 20 billion in two trading sessions after Beijing announced that education platforms could no longer make profits, raise capital or enter the market. However, TAL, New Oriental and Gaotu Techedu Inc. Shares of. It still costs more than $ 2. This means that there is no risk of eliminating them unless prices fall further.

What the American government is doing

In August, a U.S. investment ban on some Chinese military or intelligence-related companies will take effect. It will affect Huawei Technologies as well as the country’s three largest telecommunications companies. Fund managers have one year to withdraw investments in these companies. Under a law passed in December under the Trump administration, Chinese companies could face removal if they refuse to share financial information with U.S. regulators. In March, the US Securities and Exchange Commission began enforcing new laws requiring Chinese companies to audit their books. Citing national security, China has long refused to allow the United States to audit its companies. On the other hand, U.S. lawmakers argue that such resistance exposes investors to risks such as fraud. They also point out that Chinese companies must comply with US regulations if they want to raise capital in the United States.

How do companies get out of the market?

If they do so to avoid pressure in Beijing, either voluntarily or voluntarily. Analysts point to two possible routes: a secondary listing on the Hong Kong Stock Exchange or a transfer to the private sector.

Why should a company go private?

A company may withdraw from the stock exchange if it feels that political tensions are adversely affecting the share price or that it is under political pressure. New Chinese regulations prohibit private education companies from making profits, raising capital or entering the market. This means that organizations that have already entered the market will be forced to leave.

What is a “dual listing”?

Double listing is a listing of two or more exchanges. This is usually done to increase liquidity, to trade stocks for extended periods of time in different time zones, and to attract investors from the judiciary who may find it difficult to gain access to stocks. Companies can first go public in the Hong Kong stock market and then exclude their shares from the US exchange. In this case, they have a double list for a while. Unlike the transition to the private sector, the process is simpler and allows the company to stay in the capital markets. For example, Alibaba has been listed in the US since 2019 but the company is listed on the Hong Kong exchange. Many investors are skeptical of companies registered in Hong Kong because the sovereignty of the region is questionable.

How to find out which companies are considering this option

We learned about this in early August when TAL and New Oriental reported their quarterly earnings.

How does this affect the condition of companies?

If these companies could use the capital markets of different countries, their impact would be minimal. The problem with a secondary listing in Hong Kong is that the process can take a long time, and the estimated value of these companies is less than the U.S. initial public offering.

Developed by based on the material of the Bloomberg Agency

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