China is ready to place new limitations on offshore IPOs by firms in the restricted sectors- that are off-limits to foreign investment. The Chinese firms in industries banned from the foreign investment will have to seek a disclaimer from a negative list before proceeding towards the sale of shares.
The move is expected to cover up a loophole that the growing technology industry of China has used. The firms have used the measure to raise capital in foreign countries.
On Monday, the Chinese National Development and Reform Commission made a joint statement with the Ministry of Commerce. The report clarified the limitations imposed and said that the Chinese firms banned from receiving foreign investment would have to follow a set process.
Overseas investors of these companies are to be forbidden from participating in management. The total ownership would be capped at 30%, while only 10% rests with a single investor. The move is set to be effective from 1st January.
The limitations are one of the most significant steps that the Chinese Government has undertaken to tighten its overseas listings. The move is also a result of Didi Global Inc.’s proceeding with the New York IPO even after regulatory concerns. The new rules and limitations have made the entire process more difficult and costly.
However, according to China’s Economic Planning Agency, the limitations apply to the new IPO listings and will not affect the foreign ownership of the listed companies.
Earlier on Friday, the China Securities Regulatory Commission proposed that all the Chinese companies seeking IPO listings abroad would have to first register with the Securities Regulator. A firm whose listing could seem like a national security threat would be banned from proceeding further.
This tightened security from the Chinese regulators has grabbed the attention of their U.S. counterparts. This month, the U.S. SEC also announced that foreign companies that threaten U.S. scrutiny would be delisted from New York Stock Exchange and Nasdaq.