Chinese enterprises keen again to list overseas, experts say

Chinese companies' interest in overseas listings has been on the rise thanks to a filing mechanism implemented earlier this year and an improving external environment, said experts.

Textile supplier Majestic Ideal Holdings Ltd is one such company eyeing an offshore debut.

According to a document released by the department of international affairs of the China Securities Regulatory Commission on July 26, the company's filing for listing on the Nasdaq has been approved. This will make Majestic Ideal Holdings the first company to have completed the filing process with the CSRC since the filing mechanism for Chinese companies' overseas listings took effect on March 31.

According to the prospectus, Majestic Ideal Holdings plans to issue no more than 2.875 million shares on the Nasdaq at between $4 and $5 per share. Majestic specializes in the production of yarn and garments.

In the fiscal year ended Sept 30,2022, Majestic reported an annual sales revenue of $16 million, while its net profit came in around $1 million, according to its prospectus.

Ever since the new mechanism took effect at the end of March, a total of 86 companies had submitted their overseas listing applications to the CSRC as of July 20, according to data provided by the regulator. Of them, 63 companies are destined for the Hong Kong bourse. The rest plan to float on the Nasdaq or the New York Stock Exchange.

Applications have sped up since the second half unfolded, with 31 candidate companies submitting applications since early July, outnumbering recent monthly applications.

Ten applications have been approved so far. Besides Majestic, the rest will be IPOs in Hong Kong.

Approval speed has also been accelerated. While only two companies were given the approval in May and none in June, eight companies have received the green light from the top regulator in July.

During its midyear work conference ended on July 25, the CSRC said that the filing mechanism for Chinese companies' overseas listings should be better managed, which is conducive to the deepened reform of the capital market.

Wang Yixian, international executive director of China Securities, said the filing mechanism has largely facilitated Chinese companies' overseas listing plans by providing a more transparent and predictable institutional environment. As a large number of quality Chinese companies have launched overseas listing procedures over the past few years, the new mechanism will provide companies with more offshore financing opportunities.

Li Kang, assurance partner with a professional services provider, said 19 Chinese companies have successfully listed in the United States in the first half of this year, up 375 percent year-on-year. Total proceeds spiked 503 percent year-on-year reaching $603 million. Although most of the companies have floated via special purpose acquisition corporations, the number of overseas IPO cases and fundraising levels has increased significantly compared to the same period last year.

Li also mentioned that Chinese companies will be more upbeat about listing in the US thanks to the oversight cooperation agreement that regulators from the two countries reached last August.

Under the agreement, the US Public Company Accounting Oversight Board will have full access to inspect and investigate PCAOB-registered auditing firms in China. The execution of the inspection was confirmed at the end of last year.

During a media interview in early July, Nasdaq's Vice-Chairman Robert McCooey said the agreement has "set the foundation" for Chinese companies to return to the US stock market. The delisting risk, which affected US-listed Chinese companies for three years due to the China-US auditing dispute, has been removed. More Chinese companies are therefore keen to list in the US stock market.