While Chinese firms eventually become successful trading in US markets after making their public debuts, some firms underperform with even getting kicked out due to one scandal or another.
In what appears to be the most tumultuous year for most businesses, Chinese firms that listed in US exchanges through an Initial Public Offering (IPO) has broken a 6-year record. According to a report by CNBC, a total of 30 Chinese firms had their IPO this year and collectively raised a total amount of $11.7 billion, representing a six-year high.
The last record was set in 2014 when 16 China-based companies raised a cumulative $25.7 billion, a massive figure that was fueled by the public listing of Alibaba Group Holding Ltd (NYSE: BABA) on the New York Stock Exchange. The current record is an indication of the undying interest in the capital potential inherent in US markets amid tensions between the United States and China, the world’s two largest economies.
The trade war has put a lot of strains on a number of Chinese companies chief amongst whom is Huawei Technologies Co Ltd. The company was banned from sourcing its phone manufacturing chips and components from its US suppliers including QUALCOMM Inc (NASDAQ: QCOM), putting significant pressure on the company’s phone production operations.
The United States government under President Donald Trump also clamped down on WeChat from Tencent Holdings Ltd (HKG: 0700), with ByteDance’s TikTok escaping a ban with a part ownership deal by American firms saving the sensational short video app. Despite these, Chinese firms were more determined than ever to go public in the United and amongst the firms that made a successful entry include electric vehicle manufacturing startups Xpeng Inc (NYSE: XPEV), and Li Auto Inc (NASDAQ: LI) as well as personal financial services platform Lufax Holding Ltd – ADR (NYSE: LU) to mention a few.
How Chinese Firms Perform after US IPO Listing
While Chinese firms eventually become successful trading in US markets after making their public debuts as seen in the case of Alibaba, a handful of these firms underperform with some even getting kicked out due to one scandal or the other.
A typical example in this regard is Luckin Coffee Inc – ADR (OTCMKTS: LKNCY), a Chinese coffee company that was embroiled in an accounting scandal earlier in the year. The company was delisted by Nasdaq in April. The Luckin Coffee scandal was significant as the company held the record of being the first Chinese firm since the 2000s that attained a $3 billion valuation in less than 24 months of its IPO listing.
According to data from Renaissance Capital who profiled the 30 Chinese firms that had their IPOs this year, Phoenix Tree Holdings Ltd (NYSE: DNK) is the worst performing-IPO of the year. According to the CNBC report, the Renaissance data and analysis found that Chinese companies that raised at least $100 million this year have, on average, netted total returns of 81%, an impressive gain for each company’s investors.