Informants reported that the Nasdaq stock exchange in the United States is once again strengthening its scrutiny of small initial public offerings (IPOs) from China and Hong Kong, in order to avoid the dramatic fluctuations seen after a few transactions two years ago.
According to sources, some Chinese and Hong Kong IPO applicants are required to answer a series of questions from Nasdaq, with the review focused on the identities and independence of investors selling shares before the company goes public.
So far, no IPOs have been suspended due to Nasdaq’s latest actions, but the listing process has been extended by several weeks, leading to increased costs and uncertainty.
In 2022, stocks from several Chinese and Hong Kong companies, including Shangcheng Numerical Science and Addentax Group, soared by over 300 times on the day of listing, only to plummet again within weeks, raising significant concerns in the market.
Amid escalating geopolitical tensions before the U.S. election, more and more small Chinese and Hong Kong companies are seeking to raise capital on Nasdaq. Bloomberg pointed out that this trend is driven by the continued downturn in the Chinese market, where many companies are unable to secure funding domestically, and the fact that Hong Kong’s small stock exchange had been effectively closed for years until earlier this month. Therefore, after the Chinese Communist Party relaxed restrictions on overseas listings, these companies turned to seeking IPOs abroad.
A Nasdaq spokesperson declined to comment on Bloomberg’s request for a response.
This year, around 20 Chinese and Hong Kong companies have listed on Nasdaq, raising a total of $195 million. Recently listed companies include Chinese educational software company “Jiade Ltd.” and personal care product manufacturer “Raytech Holding Ltd.”
Since its listing in May, Jiade Ltd. has dropped by 77%, while Raytech Holding has fallen by 15%.
As part of the review process, Nasdaq officials have inquired about the backgrounds of selling shareholders, their relationships with the company, and with each other. Sources mentioned that in some cases, Nasdaq requires documentation to support the valuation of private shares and requests bank documents to prove that funds have indeed changed hands during the purchasing process.
These sources stated that proving the independence of investors can eliminate doubts in the market about stocks being artificially inflated and then sold off after listing. They further mentioned that the exchange aims to ensure that American investors hold the majority stake in these IPOs.
After enduring a prolonged downturn, the number of Chinese and Hong Kong companies going public in the United States is slowly increasing. Nevertheless, large-scale Chinese IPOs in the U.S. remain scarce. Since 2023, only five Chinese companies listed in the U.S. have raised more than $50 million.