China's mainland stock market watchdog is discouraging the establishment of 'red-chip-structured' companies in sensitive industries, dealing a blow to tech and biotech IPO candidates. Industry sources say the move reflects regulators' caution, ensuring asset sales do not escape scrutiny.
China's mainland stock market watchdog, the China Securities Regulatory Commission, is discouraging the establishment of 'red-chip-structured' companies in sensitive industries such as tech and biotech. Industry sources say this reflects regulators' caution to ensure any sale of assets does not escape scrutiny.
For any approved offshore incorporated structures, the regulator requires listing applicants to provide detailed explanations of foreign exchange arrangements and overseas investment procedures.
"Many biotech and tech specialist funds are offshore US dollar funds … adopting [red-chip] structure makes it easier [for these Chinese companies] to attract global investors," said David Lau, vice-chair of investment banking for the Asia-Pacific region at JPMorgan Chase. He added that such structures offer "greater flexibility for partnerships, acquisitions, and business development with overseas entities" and help incentivise overseas employees, given the companies' extensive offshore operations.
The policy indicates heightened oversight of sensitive sectors, posing challenges for IPO candidates relying on these structures.