Nasdaq is believed to be set to tighten restrictions on initial public offerings which is expected to increase the difficulty for Chinese firms to list on its bourse.
While concerns about «lack of accounting transparency and close ties to powerful insiders» were major drivers for tightening, according to a «Reuters» report citing unnamed sources, the new rules will not specifically cite Chinese firms.
In addition to rising tensions in U.S.-China relations, the tightened rules also follow the recent scandal involving the Luckin Coffee IPO in early 2019 and the fraudulent inflation of sales figures.
New Rules
The new rules will require a minimum IPO size of $25 million or, alternatively, a minimum of one-quarter fundraising post-listing. This will apply to a series of countries including China. 40 out of 155 Chinese companies that listed on Nasdaq since 2000 grossed below $25 million in IPO proceeds, according to Refinitv data.
This marks the first time that Nasdaq has required a minimum IPO size.
In addition, the proposed rule changes will also require auditing firms to comply with global standards while the bourse will also inspect small U.S.-based auditors of prospective Chinese firms, the report added.
Trump Pressures
Drivers within the U.S. continue to apply pressure to Chinese capital markets including, most recently, President Donald Trump’s announcement to withdraw investments from the federal retirement fund. And at the time, he also shared that the administration was considering tougher options against Chinese equities precisely with regards to unequal and unfair advantageous reporting standards.
«It's pretty amazing but here's the problem with that. Let's say we do that, right? So what are they going to do? They are going to move their listing to London or someplace else. You see?» Trump said.
«Let's say you want to get tough. You know everyone wants to be a tough guy. Look I am the toughest guy but what happens is they say okay, we will move to London or we will go to Hong Kong.»
