Last year, a number of fintech companies, including Xinerfu, PpDAI and Qudian, went public in the US, which can be called a “lucky year” for Chinese fintech companies. This year, huya went public last month on the New York Stock Exchange and Ping An Hao Doctor on the Main board of the Hong Kong Stock Exchange. Now, the high-profile Xiaomi is about to go public in Hong Kong, meituan is also reported to go public in Hong Kong in September. Many Chinese tech companies, such as Tencent Music, Didi Chuxing and Youxin, plan to IPO in the US or Hong Kong in the future.
Throughout the listing of these Chinese technology companies, there is an obvious common point, that is, they all choose to be listed overseas or In Hong Kong. In fact, this is not surprising, BAT’s early choice has shown some problems. But for a wide variety of Chinese tech companies, large and small, the benefits of listing in the U.S. or Hong Kong are clear.
The lure of going public
There are some essential differences between going public on the mainland and going public in the US or Hong Kong, and these differences are crucial for the vast majority of Chinese tech companies. In other words, when a company wants to go public, it has many choices. As long as you weigh your own interests a little, it becomes clear who is more suitable for you. The attractiveness of us and Hong Kong listings for Chinese tech companies can be summed up in the following aspects.
First, the key conditions are more relaxed and the threshold of listing is lower
For enterprises to go public, I believe that most people have a potential consensus: it can raise a large amount of capital. Previously, some media have analyzed xiaomi’s listing, believing that xiaomi’s listing will write a rich myth of “5500 people becoming multimillionaires”. In this regard, going public has great benefits for both companies and individuals.
In Korea, however, there are strict requirements for companies to go public. Let’s take the Shanghai Stock Exchange as an example to extract a few key listing conditions. First, the net profit of the last three fiscal years is all positive, and the cumulative net profit is more than 30 million yuan. Second, after the establishment of the joint stock limited company, the continuous operation period shall be more than 3 years, except for those approved by The State Council.
By contrast, America’s stock exchanges have some restrictive conditions for foreign listings, but they generally beat some key requirements. For example, no profit threshold is set, and the listing cycle is short (the shortest time is about three or four months). Take “no profit” as an example. Iqiyi, JINGdong, Rong360 and Qunar were all listed at a loss. Taking the condition of “short listing cycle” as an example, domestic IPO is always in a queue. According to statistics, nearly 400 enterprises have been approved by the CSRC and are in the queue every year, and more enterprises are still in the application stage to the CSRC.
In contrast to China and the US, the ease of listing is self-evident. Moreover, the relaxed listing conditions for Chinese technology companies bring two opportunities: one, may be able to seize the attention of the capital market in the critical development period, soar; Second, after the critical juncture of going public, the unfavorable development situation of the company may be reversed. Generally speaking, the loose conditions are equal to more tickets, for some Chinese technology enterprises want to “fly on the branch to become a phoenix”, why not?
Second, the maturity of the capital market is higher
If the conditions are relaxed, I am afraid it is not enough to be the reason for Chinese technology companies to “go global” to go public. Another key driver is the maturity of U.S. capital markets. “I am greedy when others are fearful and fearful when others are greedy,” is one of Buffett’s best sayings about investing philosophy.
In fact, it reflects the bull and bear imprint of the us stock market, which has weathered the storm. It also shows that the US capital markets are mature enough. For Chinese tech companies seeking ipos overseas, maturity is attractive for two main reasons.
First, investors are better structured. Lin Xiaodong, president of Vanguard Group China, said recently that the U.S. market is 80% institutional investors, while the Chinese market is 70% retail investors. In terms of proportion, more institutional investors mean that the investment attitude of the market as a whole is more inclined to comprehensive and cautious investigation, prediction and inference, which itself is a friendly supervision spur for listed companies.
The second aspect, the same share of the superiority of different power system. Listed companies often worry about losing control of the company due to dilution of equity, while the US capital market adopts the “AB share structure” system, in which Class B shares are held by the company’s management and Class A shares are held by peripheral shareholders. Even if listed, the actual control of the company remains in the hands of the founding team.
Third, the evolution of institutions
Attracting companies to go public is the same as attracting investment to stimulate the vitality of local investors and boost local economic growth. In order to attract outstanding technology companies to go public, the Hong Kong Stock Exchange announced new IPO rules on April 30 this year, officially implementing the listing system of “same shares with different rights”. The listing of Xiaomi may shed some light on why it is necessary to reform its own system at this juncture, which to some extent also proves the expectation of technology companies for “different rights with the same share”.
The New York Stock Exchange and NASDAQ have a bigger say in listing reform. Reports from the National Business Daily show that the New York Stock Exchange is taking the unconventional route of “direct listing” to compete for unicorns like Spotify; After repeated reforms in the past, NASDAQ has gradually formed a differentiated listing system of “precise stratification”.
Companies seeking to go public are becoming more and more diverse. The system is set by people, so it should be flexible. Only a changing system can adapt to the needs of all parties. From the perspective of the competition between exchanges, the probability of attracting more excellent technology enterprises will be greater only by constantly evolving their own systems. From the perspective of technology enterprises, institutional evolution not only represents the optimization of listing conditions, but more importantly, such evolution also conveys a friendly attitude to the outside world. Every company is unique, and they often need the dignity that goes with it.
Iv. Capital’s driving force for the company’s future development
Listed at the end of march to the station B chairman Roy in an interview with surging news said: “to be listed because, to a stage is a stage, I think for bi li bi li, could the future needs a bigger platform, more leverage, the higher brand awareness to do something, so it should be listed.”
B station chairman’s voice actually reflects a common expectation of overseas listed companies. This expectation mainly comes from the positive effect of capital market on listed enterprises. On the one hand, the abundant cash flow generated by the high valuation effect in the capital market is clearly reflected in the habit of American investors to give higher valuations to Chinese stocks whose “model makes sense”. On the other hand, for Chinese technology enterprises, going public overseas is the brand “gold plating”, which can not only improve users’ brand awareness, but also pave the way for internationalization strategy.
“Go Out” listing can be a powerful pill, or it can be a deadly poison
Going public is going public. How it performs after going public is another matter. Although going public in the US and Hong Kong has become a trend of Chinese technology enterprises, and even means redemption to some extent, the capital market is not stupid. A mature capital market will certainly adopt a mature method when examining enterprises.
By June 4, ping An Good Doctor’s share price had fallen 20%, a month after it went public; B station stock price broke on the first day; Qudian plunged more than 70% seven months after its ipo; And then the other day Lenovo was kicked out of the Hang Seng index… In view of the habit of capital market, the rise and fall of stock price is an inevitable normal state, but such performance is actually a comprehensive selection result of mature capital market after examining enterprises.
This scrutiny is not hard to understand. On the one hand, mature capital markets are often filled with more rigorous investors, who are more rational and will make professional investigations before deciding whether to invest in enterprises. On the other hand, they have super sensitivity to the acquisition of corporate information, just as Qudian was seen as declining by the capital market after the storm.
The capital market is always a situation of a few happy and a few sad. Moreover, from the perspective of Chinese technology enterprises, even if an unprofitable enterprise succeeds in IPO, even though the capital market is very optimistic about it at the beginning, it may be neglected because the development problem of the enterprise cannot be solved. This problem, which was not a burden before the listing, may become the biggest burden after the listing.
Companies listed in the U.S. and Hong Kong vary in size, from Internet giants such as Alibaba and Tencent to many young companies still in the start-up stage. If these enterprises bet on the right vision of the capital market, then everyone will be happy, but there is a certain similarity with the stock market. High returns are accompanied by high risks. The capital market is not always healthy, and various negative effects may sometimes be “deadly poison”.
In fact, once you go public, you have to assume all the possible outcomes. Listing in the US or Hong Kong may open a rare door for many enterprises, but it is up to the enterprises themselves whether they can seize the opportunity to take their enterprises to a higher level after crossing the door.
“Going public” may be just the starting point
This year, baidu, JD.com, netease and other Internet giants that listed overseas in the early stage have all expressed their willingness to go public back home. The list of the first batch of CDR enterprises, including Baidu, Alibaba and JINGdong, has been made public by many media. Obviously, “going out” Chinese technology companies are likely to return to China with the change of domestic capital market system and environment.
For companies they may return to A shares, listed on the “going out” is more like they find A resting place before for many years, and in the new target, after they have entered the mature stage and stability, also has A more powerful capital strength to face the new environment, capital as ding said, “I’ll learn the advanced experience of capital market abroad all back home”.
From the perspective of Edith’s theory of the corporate life cycle, corporate listings are at best adolescence. Therefore, going public is not the end of the road for Chinese technology companies. After China’s tech companies have gone public, they still face many unexpected variables, which could be the start of a new journey or the aftermath of a carnival.
When Alibaba took its Hong Kong shares private and delisted in 2012, Mr. Ma argued that taking Alibaba private would free us from the pressures of owning a listed subsidiary and enable us to make a long-term plan that was best for our customers. In 2015, overseas listed Renren was privatized and delisted. In 2016, Qihoo 360 announced the completion of its privatization and delisted from the New York Stock Exchange… From listing to delisting, these companies have received the olive branch of capital markets, as well as the weight of undervaluation and performance expectations. But delisting doesn’t necessarily mean failure, and sometimes the resignation and compromise can actually help a company win a more promising future.
However, it is undeniable that there are some management teams of enterprises with the idea of “listing is the end”, after accepting the friendly bath of the capital market, or retire, or retire. The idea worked, for science and technology enterprises, the vitality in which a second unknown nodes, those who have been listed on or about to “go out” China science and technology enterprises, should think about this question, namely “how to use the foreign market powerful capital attention and power gain great impetus, allowing your muscles more and more developed”. In the face of the ever-changing capital market, maybe we can think more about the saying “constant should change” and keep the phased goal of the enterprise unchanged, so that we can obtain endless treasure and true knowledge in this endless journey.
Article/Liu Kuang public account, ID: Liukuang110, this article is the first FT Chinese website