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Trump sets deadline for rethink of Chinese companies’ US listings

JD.com seeks up to $4.3 billion as NetEase raises $2.7bn in Hong Kong stock sales

U.S. President Donald Trump on Thursday directed a task force led by Treasury Secretary Steven Mnuchin to provide recommendations within 60 days on protecting investors from fraudulent practices at New York-listed Chinese companies.   © AP

HONG KONG/PALO ALTO -- President Donald Trump has ordered U.S. regulators to suggest ways to tighten scrutiny of New York-listed Chinese companies within the next 60 days, as tensions persist between Washington and Beijing over financial and trade ties.

"While China reaps advantages from American markets, however, the Chinese government has consistently prevented Chinese companies and companies with significant operations in China from abiding by the investor protections that apply to all companies listing on United States stock exchanges," Trump said in a memorandum released by the White House Thursday.

Chinese companies' access to U.S. capital markets has become the latest flashpoint between Washington and Beijing as the two countries clash over Hong Kong's future, the coronavirus pandemic and trade, leading to debate over the "decoupling" of the world's two largest economies.

Several Chinese tech companies are tapping Hong Kong for secondary listings after the U.S. Senate last month approved a bill that could force mainland companies to delist if they fail to comply with U.S. regulatory standards for three consecutive years; currently foreign companies are subject to a lower standard of scrutiny.

On Friday, NetEase, China's second-largest gaming company, priced its offering at 123 Hong Kong dollars ($15.86) a share. This means the main phase of the stock sale will raise $2.7 billion for NetEase, the most any company has raised in Hong Kong so far this year.

The record could be short-lived. JD.com, China's second-largest online shopping platform, launched its own stock sale in Hong Kong on Friday, looking to raise as much as $4.3 billion.

The U.S. has pointed the finger at Chinese companies over suspect accounting practices and a lack of transparency. The efforts to crackdown on Chinese companies have intensified with recent cases of alleged accounting fraud such as that of Luckin Coffee, which has admitted that senior employees fabricated sales figures.

U.S. Secretary of State Mike Pompeo on Thursday separately urged exchanges around the world to tighten rules on Chinese companies and step up oversight.

According to his memo, Trump ordered the presidential working group on financial markets, which is chaired by Treasury Secretary Steven Mnuchin, to provide recommendations within 60 days on protecting investors from fraudulent practices at U.S.-listed Chinese companies.

"We must take firm, orderly action to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets," Trump said.

The memorandum said the Chinese government had prevented auditing firms registered with the U.S. Public Company Accounting Oversight Board from inspecting listed companies' audit papers.

The listings in Hong Kong of NetEase and JD.com, which are traded primarily in New York, are being closely watched as a host of mainland companies appear eager to follow in the footsteps of Alibaba Group Holding in setting up a second home in the city amid the rising pressure from U.S. politicians. 

"This is going to be a big year for IPOs, including both huge IPOs from China, but (also) very substantial returnees, what we call them, from the United States," Charles Li, chief executive of Hong Kong Exchanges & Clearing, told an industry conference on Thursday.

He credited the flow to a combination of American political pressure and reforms to loosen Hong Kong's listing rules. 

“Today the atmosphere in the U.S. is becoming less friendly and we obviously have fundamentally changed many aspects of our listing regime so that we are becoming more accommodating,” he said.

JD.com is selling 133 million shares, or a 4.3% stake, which would be valued at $3.76 billion based on Thursday’s closing price in New York, according to a term sheet seen by the Nikkei Asian Review. Assuming demand is strong, the company will have the option to raise the deal size to a 4.9% stake.

The company set an indicative ceiling price for retail investors of HK$236, representing a 7.8% premium to the last New York closing price. The subscription period will close on June 10, with pricing the next day and a trading debut in Hong Kong on June 18, when the company will hold a major sale on its online platform. 

NetEase priced its shares at a 2% discount to its Thursday close in New York, a narrower spread than the 2.6% Alibaba offered last November when it raised $13 billion in Hong Kong.

"The demand was overwhelming, and hence the small discount," said a person involved in the NetEase deal. "We are confident it will have a strong opening,"

The shares are to start trading in Hong Kong on June 11. Under the offering rules, NetEase could release an additional sum of shares which would raise the overall sale size to $3.1 billion.

Credit Suisse, China International Capital Corp. and JPMorgan Chase were among the lead deal arrangers.

Hong Kong was the largest listing destination in the world last year with $40.24 billion generated. It is fifth so far this year, with just $3.4 billion raised, compared with $5.82 billion in the same period last year, according to Dealogic.

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