US-listed Chinese firms possibly face more trouble as Nasdaq reportedly halts initial public offerings for a handful of small companies.
Nasdaq is pausing the IPO process and investigating at least four small Chinese companies over their short-lived post-IPO rallies, with returns as high as 2,000 percent on the first day of trading, according to a «Reuters» report citing multiple sources, some of which were named.
In the article, Ellenoff Grossman & Schole’s Douglas Ellenoff indicated that «last-minute phone calls» by the exchange relayed that certain IPOs would not be allowed to proceed «until they determined what has been the aberrational trading activity in certain Chinese issuers earlier this year».
Separately, Boustead Securities head of equity capital markets Dan McClory said that Nasdaq had been inquiring advisors of small Chinese firms undergoing IPOs as far back as the middle of September. The questions specifically related to their existing shareholders’ identity, location of residence, the invested amounts and whether or not interest-free debt had been offered to induce participation.
Outstanding Debuts
According to Dealogic data, Chinese IPOs in the US have generated more than 400 percent in returns on their first day of trading, compared to 68 percent from all other IPOs. Year-to-date, nine small Chinese firms have listed in the US, with the total listings in the past five years being 57.
Another anonymous source in the report said that this outperformance was the result of participation by unidentified overseas investors that bought up most of the stock, causing the perception of strong demand.
