Chinese companies are rushing to go public in the red-hot IPO market in the U.S. — before it loses steam.
The first three months of the year marked the busiest quarter for overall U.S. initial public offerings since 2000, according to consulting firm EY.
Despite the coronavirus pandemic and tensions between the U.S. and China, half of 36 foreign public listings in the U.S. during that time came from companies based in Greater China, EY said.
More are coming.
About 60 Chinese companies plan to go public in the U.S. this year, Vera Yang, chief China representative for the New York Stock Exchange, said Tuesday.
“From our interaction with companies, our sense is they would like to lose no time (in listing),” Yang said in a Mandarin-language interview, translated by CNBC. She pointed to uncertainties such as those brought by the pandemic, and a likely tightening of monetary policy in the longer term that would reduce the availability of capital.
Money has steadily entered the market since the pandemic, allowing 30 China-based companies last year to raise the most capital in U.S. IPOs since 2014, according to Renaissance Capital.
The S&P 500 climbed to fresh record highs this year, while U.S. Federal Reserve Chairman Jerome Powell signaled that monetary policy will remain loose in the near term.
For Chinese start-ups, investors and businesses are looking to cash in. They’re also looking past legislation passed under the Trump administration that would force U.S. exchanges to delist foreign companies that don’t comply with three years of U.S. audits.
Delisting concerns have calmed down since President Joe Biden took office in January, and market participants expect a compromise, said Blueshirt managing director Gary Dvorchak, who advises Chinese companies interested in listing in the U.S.
“It’s a tidal wave,” he said of the Chinese IPO pipeline.
“Our phone is ringing off the hook. We’re trying to hire more people. We haven’t seen anything like this since the Nasdaq bubble in ’99,” he said. “Makes me worried.”
The rich get richer
In the late 1990s, a surge of speculation in new technology companies ranging from Pets.com to Cisco fed a U.S. stock market bubble that began to burst in 2000, in what came to be known as the “dotcom bubble.”
This year, investor caution about viable business ventures caused capital to pile into just a few of the same companies, rather than spreading out their bets. The trend holds in China, home to many of the world’s so-called unicorns — or start-ups valued at $1 billion or more.
Hongye Wang, China-based partner at venture capital firm Antler, said that anecdotally, more people are asking him for shares in unicorns than in earlier-stage start-ups.
“A lot of companies cannot raise a lot of money, or their valuation(s) are decreasing. But if you look at the unicorns, especially the pre-IPO unicorns, their valuation is still crazy,” he said.
Just take popular Chinese soda water company Genki Forest, which earlier this month reportedly secured another capital injection — of $500 million — bringing its valuation to $6 billion. In contrast, one of the biggest fundraising rounds in yuan that week was a much smaller 600 million yuan ($92.3 million) series B injection into Abogen Biosciences, according to Crunchbase.
