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RIYADH: China plans to ban companies from going public on foreign stock markets by companies with different interests.
According to Bloomberg, it will fill a void the country’s tech industry has long used to raise capital from overseas investors.
People familiar with the matter, who asked not to be identified when discussing private information, said the ban, which is partly aimed at addressing data security concerns, is one of the changes included in a new draft of China’s rules for Overseas lists are included that could be finalized as of later this month.
Companies using what is known as the Variable Interest Entity (VIE) structure are likely to continue going public in Hong Kong, subject to regulatory approval, the sources said.
VIE refers to a corporate structure in which an investor has a controlling interest even though he does not have a majority of the voting rights. A company that is the primary beneficiary of a VIE must disclose that company’s holdings as part of its consolidated balance sheet.
The Chinese Securities Commission said on its website on Wednesday that a media report banning offshore listings by companies using the VIE structure was false without providing any further details.
Companies currently listed in the US and Hong Kong that use VIEs will need to make adjustments to make their ownership structures more transparent during regulatory reviews, especially in sectors where foreign investment is banned, the sources added.
The reform would be one of Beijing’s biggest moves to crack down on offshore listings.
Since then, authorities have acted quickly to stop the flow of companies looking to go public in the US and shut down a path that has raised billions of dollars for tech companies and their Wall Street supporters.
A global ban on the VIE structure is not envisaged, but a halt to overseas listings and further review of Hong Kong’s IPOs will mean that the model will not be a viable way for many startups to enter the capital market.
A person familiar with the matter said some investment banks had already been ordered by regulators to stop working on new transactions in VIEs.
VIE’s demise would also threaten the lucrative Wall Street banking business, which has helped nearly 300 Chinese companies raise around $ 82 billion through first-time stock sales in the US over the past decade.
VIEs are a constant source of concern for global investors because of their unstable legal framework. Sina Corp. and its investment bankers were leaders in an IPO in 2000, and the VIE framework was not officially adopted by Beijing.