July 30 (Reuters) – The U.S. securities regulator will not allow Chinese companies to raise money in the United States unless they fully explain their legal structures and disclose the risk of Beijing interfering in their businesses, the agency said on Friday, confirming an exclusive report by Reuters.
In a statement, Securities and Exchange Commission Chair Gary Gensler said he had also asked staff to “engage in targeted additional reviews of filings for companies with significant China-based operations.”
The development underscores U.S. policymakers’ concerns that Chinese companies are systematically flouting U.S. rules that require public companies to disclose to investors a range of potential risks to their financial performance.
Chinese listings in the United States have reached a record $12.8 billion so far this year, according to Refinitiv data, as companies swooped in to capitalize on the U.S. stock market reaching daily record highs.
Deal flows slowed substantially this month after Chinese regulators banned ride-sharing giant Didi Global Inc (DIDI.N) from signing up new users just days after its blockbuster IPO. They followed up with crack-downs on technology and private education companies.
In an interview with Reuters earlier this week, SEC Commissioner Allison Lee said that Chinese companies listed on U.S. stock exchanges must disclose to investors the risks of the Chinese government interfering in their businesses as part of their regular reporting obligations. read more
On Friday, Reuters reported that the agency was not processing registrations for the issuance of Chinese company securities pending SEC guidance on how to disclose the risks they face in China.
Following that report, Gensler issued Friday’s statement saying that in light of Beijing’s crackdown, he had asked staff to seek additional disclosures from Chinese companies before making their registrations effective.
These should include that investors face “uncertainty about future actions by the government of China that could significantly affect the operating company’s financial performance” and the enforceability of certain contractual arrangements.
Chinese issuers must also disclose if they were denied permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded.
In addition, Chinese companies should disclose when Chinese law requires them to list in the United States via an offshore shell company, which carries additional legal risks.
“I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies,” said Gensler.
For a FACTBOX see: read more
The SEC’s move represents the latest salvo by U.S. regulators against corporate…
Go to the news source: U.S. SEC says Chinese IPO hopefuls must provide additional risk disclosures