Regulations expected soon for orderly overseas listings

A man takes photos of a big screen displaying stock prices at the listing ceremony of the first batch of registration-based initial public offerings (IPOs) of enterprises debuted on the ChiNext board at Shenzhen Stock Exchange in Shenzhen, south China's Guangdong Province, Aug. 24, 2020. (Xinhua/Mao Siqian)

New rules to support orderly overseas stock exchange listings by local companies and strengthen oversight of under-regulated ownership structures are expected to be released soon, experts said on Thursday.

On Wednesday, the China Securities Regulatory Commission denied foreign media reports that the commission will ban overseas listings of Chinese companies that use the variable interest entity or VIE structure.

"We have noticed the reports. The information is not true," the commission said in a statement.

Under a VIE structure, an offshore-registered company takes control of a mainland-based business through contracts, bypassing pre-listing scrutiny by domestic authorities. Many internet firms, like Tencent and Sina, have been listed overseas via the structure.

Ren Zeyu, an associate professor at China University of Political Science and Law in Beijing, said the commission's response signaled that revised regulations of overseas listings may soon be unveiled and feature regulatory controls in line with a listing's potential impact on data security.

"If a VIE-structured overseas listing risks threatening the country's data security, a joint pre-listing oversight is expected to be done by industry regulators, the Ministry of Commerce and the CSRC," Ren said.

Otherwise, VIE-structured companies seeking overseas listings may only need to register with Chinese authorities, and a green light will be given automatically if no opposition is expressed, he said.

The expected regulatory revisions will by no means aim to ban VIE-structured firms from getting finance in international markets, but will subject such transactions to regulation, safeguard data security and prevent disorderly expansion of capital, Ren added.

China is mulling regulatory revisions of overseas listings, after the State Council, China's Cabinet, published a guideline in July that pledged to update related regulations rolled out in 1994 and improve laws and regulations pertaining to cross-border data transmission.

Fang Xinghai, vice-chairman of the regulatory commission, said in October that China will improve the regulatory system for overseas listings so that Chinese enterprises can make better use of both domestic and international capital markets.

David Lu, managing director and China leader of corporate finance practice with Duff& Phelps, a part of Kroll, said he hopes to soon see solutions to address issues such as VIE structure, data security and after-class tutoring in regard to overseas listings.

Once policy implementation details are available－hopefully in the coming year－many companies affected by these issues will be able to seek compliance, Lu said.

He added that smoothing the channels for Chinese companies listing overseas, especially in the US market, is in the interests of all market stakeholders.

The US market remains an attractive listing destination for Chinese companies given its professional investor base and high market efficiency, he said. US market investors, exchanges and intermediaries all benefit from listings of quality Chinese companies, Lu added.