Under a new senate bill that passed unanimously on Wednesday US time, companies that refuse American regulatory audits for three consecutive years will be banned. Further, the bill requires any non-US company to declare that “they are not owned or controlled by a foreign government”.
The Holding Foreign Companies Accountable Act was sponsored by Louisiana Republican Sen. John Kennedy, who said during the hearing “I do not want to get into a new cold war”. The bill was co-sponsored by Democratic Sen. Chris Van Hollen of Maryland and Republican Sen. Kevin Cramer of North Dakota.
It passed without objection and will apply to both the Nasdaq and New York Stock Exchange (NYSE).
The new measures apply to all non-US companies, however, analysts have been quick to highlight the impact on China, warning that several companies could be forced to delist. Some shares have already started to record a downward trend, including those of Alibaba, which saw stocks drop 2% overnight.
Chinese tech and telecoms firms likely to be hit include Baidu Inc, China Telecom, NetEase, Weibo Corporation, Momo Inc, Sina Corporation, Bilibili Inc, GDS Holdings, Changyou.com, 21 Vianet Group, Aurora Mobile Ltd, Renren Inc and Datasea Inc.
According to the US-China economic and security review commission, as of February 2019 there were 156 Chinese companies listed on the NYSE, Nasdaq and NYSE American, with a total market cap of $1.2 trillion. Of these, “at least 11” were state-owned Chinese companies listed on major US exchanges.
Nasdaq Inc (NDAQ.O) announced its proposed regulatory changes surrounding initial public offerings (IPOs) on Wednesday, applying a minimum value of the size of IPOs for the first time.
This isn’t the first such move from Nasdaq to regulate listed Chinese companies. In September 2019 it was reported that IPOs for small Chinese companies would be reviewed due to the usually limited number of US investors who back them.
According to Reuters, the new rules will require companies “from some countries”, to raise $25 million or, alternatively, at least a quarter of their post-listing market cap. In calculating the impact of this on Chinese companies, Reuters said that of the 155 Chinese companies listed on the Nasdaq since 2000, 40 grossed IPO proceeds below $25 million.
Further, global standards on auditing international franchises could be brought into play, meaning Nasdaq could inspect the auditing work of small US firms working with Chinese IPO hopefuls.
The long running issue took an earlier turn in April when the head of the US Securities and Exchange Commission (SEC) warned investors against putting money into Chinese companies as they rebalance their portfolios following market turmoil due to ongoing problems with company disclosures.
In the world of telecoms, the FCC has already threatened to withdraw the licences of China Telecom, China Unicom and two CITIC subsidiaries and the country has made further moves to block Chinese operators, including China Mobile.
