Stateside IPO’s of Small Chinese Companies Threatened by Tighter Nasdaq Listing Requirements

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Nasdaq Inc plans to launch new rules for initial public offerings (IPO’s) that will make it harder for smaller Chinese companies to list on the exchange.

Sources said to Reuters that the new rules will require companies from countries including China to raise at least USD$25 million in their IPO, or alternatively at least a quarter of their market capitalisation post-listing.

The move will mark the first time that Nasdaq has imposed a minimum value requirement for IPO’s.

According to the sources the new rules are largely motivated by concerns over lack of transparency amongst Chinese aspirants to Nasdaq IPO’s, particularly following a scandal surrounding Luckin Coffee, whose stateside listing took place in early 2019.

The proposed minimum value requirement would have prevented a number of Chinese companies currently listed on Nasdaq from achieving their IPO’s.

Refinitiv data indicates that 40 out of 155 Chinese companies that have listed on Nasdaq since the turn of the century garnered proceeds from their IPO’s that fell beneath the proposed $25 million threshold.

Nasdaq already introduced restrictions on listings last year that sought to cut down on IPO’s by smaller Chinese enterprises, whose meagre trading levels and resulting low liquidity make them unappealing for major institutional investors.

In addition to the new size requirements the proposed rules will require that international franchises prove they meet global standards during audits, while Nasdaq will also scrutinise the auditing performed on Chinese IPO applicants by smaller US companies.

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