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The past year has seen a quiet but important shift in the way Wall Street’s biggest banks take Chinese companies public. They have become more careful in warning investors about risks to avoid upsetting the Chinese government.
The changes focus on something unlikely to be the scene of political battle: prospectus documents for overseas initial public offerings. In these documents, issuers typically detail potential risk factors for investors, often in harsh language to avoid litigation if things go wrong. will be explained.
This is no small matter, given that China’s crackdown on technology and education has wiped out huge amounts of value for internationally listed companies.
When the pharmaceutical group Wuxi Biologics listed in Hong Kong in 2017, the deal undertaken by Bank of America and Morgan Stanley included language in its prospectus that could be seen as critical of China. Ta. It warned that strict compliance could be “impossible” as the demands of some Chinese regulators “may not be applied consistently by other government authorities.” The report said that China’s legal system is “partly based on government policies and administrative regulations that can have retroactive effects,” which means that “we cannot control these laws until some time after a violation.” “This means that violations of policies and regulations may go unnoticed.” Other Chinese companies listed on prospectuses in 2021 and 2022, including Xpeng, Li Auto, Asymchem, and Tianqi Lithium.
But by the time Wuxi XDC (an independent arm of Wuxi) listed in Hong Kong in November, such language was no longer in favor. A parallel section of the Wuxi “It is impossible to predict how things will change,” he said. [they] It will be interpreted and enforced. ”
The change in tone may seem subtle, but it’s no coincidence. Last year, the Chinese government introduced new rules banning banks from including “comments that misrepresent or disrespect laws or policies” in their filings. [the] Business Environment and State Judiciary Conditions.” Shortly after the new rules came into effect, the Hong Kong Stock Exchange also removed the requirement for Chinese companies listed in Hong Kong to include a China-specific “Risk Factors” section, although companies still have to identify “material or specific risks.” ” must be disclosed.
In Hong Kong listings, “What direction do the risk factors typically go?” [China’s regulator] We think it is acceptable and it will be reduced significantly,” said a senior banker. In reality, the changes may be subtle. Some people are replacing the cliché “risks associated with business activities in China” with more ambiguous risk language such as “in the countries in which we operate” or “in our principal locations of operations.” Masu.
Delivery group J&T Global Express, which was advised by Morgan Stanley, Bank of America, CICC, and UBS during its IPO, said, “Much of the legal system in our country’s markets is due in part to government policy and The company’s policy is based on internal policies,” the company said, avoiding mentioning China by name. Some of the rules may not be published in a timely manner or at all and may have retroactive impact. ” The company operates not only in China but also in Southeast Asia.
Compare this with the more direct language used for the U.S. listing by Amer Sports, which is owned by China’s Anta-led consortium. Many of the same banks are involved, including Goldman Sachs, Bank of America, JPMorgan, Morgan Stanley, Citi, and UBS. The company is not classified as a Chinese company and has not gone through the regulatory approval process in China, three people familiar with the matter said, but Amer would not confirm this.
China said in its prospectus this month that it had “recently announced new policies that have a significant impact on certain industries.” He added that “we cannot exclude the possibility that additional regulations or policies may be announced in the future” that would impact this.
Such differences pose reputational risks for banks worldwide. The SEC last year called for “more specific and prominent disclosures” about risks related to the Chinese government. Finding language that satisfies both Chinese and U.S. regulators will not be easy. One big test on the horizon will be the potential IPO of fast fashion retailer Shein, which is reportedly seeking approval from the Chinese government for a U.S. listing.
Many bankers agree that the language used when providing documentation has been toned down. They claim they are simply acting in accordance with local regulations. But some are unhappy that this raises more questions about Hong Kong. One dissatisfied financial official said: Even if U.S. companies in Hong Kong can no longer complete their prospectus filings without asking what is considered disparaging to China, can Hong Kong still be classified as an international financial center?
kaye.wiggins@ft.com
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