Regulatory blockades on China’s overseas stock exchanges are hitting companies’ financing plans

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On March 31, China introduced new rules regarding the listing of offshore companies

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No Chinese company was listed on the US or Hong Kong stock exchanges under the new rules

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Only companies in selected sectors can obtain CSRC approval – lawyer

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Several authorities are involved in the process, which causes delays – banker

Authors: Scott Murdoch and Kane Wu

SYDNEY/HONG KONG, June 29 (Reuters) – Chinese companies are struggling to obtain timely regulatory approvals for overseas share offerings as scrutiny of their proposals increases under new listing rules, frustrating potential issuers and investment bankers.

Since the stock exchange’s revised listing system was introduced on March 31, no Chinese company has gone through the process and gone public in its favored locales of Hong Kong or the U.S., publicly available data showed.

The trend underscores the growing challenges facing Chinese companies seeking to raise capital abroad, even as an unprecedented regulatory crackdown on private companies over the past three years has ended and Beijing is eager to strengthen its economy.

China’s long-awaited foreign listing rules are part of a tightening of cross-border listing rules after years of laissez-faire.

As of June 15, China’s securities regulator had accepted applications from 14 companies for overseas listings as of June 15 and was awaiting additional documents from 38 other companies for their applications to be accepted, according to public disclosures.

Of the 52 planned auctions, as many as 43 concern Hong Kong and nine – the United States

Only two companies – autonomous vehicle technology company iMotion Automotive Technology (Suzhou) and food company Shiyue Daotian Group – have successfully completed the listing application process with the securities regulator to list shares in Hong Kong, disclosures showed.

However, both have not been made public yet.

Under the new system, the waiting time for approval from the China Securities Regulatory Commission (CSRC) for overseas listings has increased to at least six months from the previous 2-3 months, said a Hong Kong capital markets lawyer.

Only companies in selected industries can get CSRC approval to list a company on a foreign exchange, said the lawyer, who did not want to be named because he was not authorized to speak to the media.

The CSRC did not respond to a request for comment.

Those awaiting the CSRC’s green light include JD.com’s real estate and industrial units, which the online retailer planned to bring to Hong Kong as soon as possible in a deal worth about $1 billion each, said people with knowledge of the two IPOs.

JD.com had hoped to list at least one unit by mid-year, one of the people said. Sources said the earliest IPO could happen in the third quarter, given the pending approvals.

CSRC disclosures showed that both entities’ listing applications were pending “additional material.”

JD.com did not respond to a request for comment.

REGULATING “BLACK BOX”

The new listing regime requires the CSRC to respond within 20 business days of accepting an issuer’s listing application. If the regulator considers the report to be incomplete, it may ask the issuer to submit additional documents within five days of receiving the report, and the issuer will have to respond within 30 days.

Sending additional materials could be time-consuming and thus delay the stock exchange listing process, bankers and lawyers say.

The banker said the approval process has become a “black box” because the CSRC also needs comments from other industry regulators before making a decision, and in most cases it is unclear where in the process the application will get stuck.

Asia’s largest financial lobby group told Reuters on Tuesday that the new rules have left bankers and lawyers working on stock exchange listings unsure how to take on obligations and avoid breaking strict confidentiality rules. (Reporting by Scott Murdoch in Sydney and Kane Wu in Hong Kong; Additional reporting by Selena Li in Hong Kong; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)