By Russell Flannery,Senior Contributor

Copyright forbes

MarcumAsia Co-Chair Drew Bernstein, left, attended the Asia Go IPO Summit in Hong Kong last week.
Marcum Asia

Though the Nasdaq is headquartered New York and many of its best-known companies such as Nvidia and Microsoft are based in the U.S., overseas listings by Asian companies account for about half of its IPOs these days. Tougher listing rules proposed by the Nasdaq this month for smaller companies – particularly from China — would improve protection for investors yet have a “dramatic” impact leads businesses and investors to seek alternatives, according to a long-time China accounting expert and co-chair of New York-headquartered MarcumAsia CPAs LLP.

“The new standards would raise the bar” for Nasdaq IPOs, particularly those coming from China, said MarcumAsia’s Drew Bernstein in a recent interview. Relatively solid smaller companies facing listing restrictions at home in China will be looking for ideas and solutions, he added.

Bernstein last Friday returned to the U.S. from Hong Kong, where an “Asia Go IPO Conference” co-hosted by MarcumAsia and the Nasdaq attracted more than 900 attendees eager to size up the proposed Nasdaq changes. Speakers including Bernstein as well as the Nasdaq’s Chief China Representative Chris Hao also provided insights into how to build a following among overseas investors and get permission for a U.S. IPO from China’s own regulators, among other fundraising topics.

The new proposed rules come after a poor performance among smaller Nasdaq IPOs in 2024, especially those from China. The average return among the Chinese group during that year was a negative 55%, suggesting that the smaller issues lacked realistic pricing during the IPO process, or may have been subject to price manipulation, Bernstein said. Though underlying problems remain, this year has been better, he noted. Among better-performing Chinese IPOs, shares in Suzhou-headquartered biotech firm Ascentage Pharma Group have more than doubled since they started trading on the Nasdaq in January; Pony AI has gained about a third since it listed last November and turned its CEO James Peng into a billionaire. Some of the largest Chinese companies to delist over the years include ChinData, Hollysys Automation, Gracell Biotechnologies, LianBio, and Genetron Health.

The Nasdaq’s proposed higher bar listing bar also comes at a time when the number of publicly trade companies in the U.S. has dropped by 17% from three years ago to about 3,700, according to a Wall Street Journal report this week, citing the Center for Research on Securities Prices. Their number has “roughly halved” since 1997, the paper said. The poor showing by the “Class of ‘24” contracts with an overall 52% rise in value by the Chinese companies to IPO at the Nasdaq this year.

MORE FOR YOU

The shrinking size of an average Chinese IPO in 2024 to $50 million in proceeds compared with $300 million in 2021 “is in part due to heightened tensions in the U.S.-China relationship, but it also reflects increased scrutiny by Chinese regulators and new regulations designed to give Beijing greater control and oversight of overseas fundraising activities,” the U.S.-China Economic and Security Review Commission said in a report in March.

The Nasdaq’s proposed new rules would raise the required minimum public float allowed from an IPO to $15 million from the current $5 million for companies that meet a profitability standard. But all new listed Chinese companies, whose investors have endured the most volatile prices, would face a new minimum of $25 million. Going forward, companies that fail to meet standards for continued listing, such as the $1 share price, with a public float under $5 million would face immediate delisting, rather than a protracted appeals process, Bernstein explained.

It could take months for the new rules to be accepted by the SEC, but some immediate effects include a near-term “rush to market” by Chinese companies that have already started the listing process and would prefer to list while existing rules that allow a smaller public float remain in place, he said.

Later applicants will likely be looking for ways to comply or alternatives to the Nasdaq. For Chinese companies looking for the prestige of the Nasdaq, the higher $25 million minimum could lead to a search for relatively deep-pocketed institutional investors, rather than smaller amounts of “friends and family” that would be enough to reach a $5 million bar, Bernstein said. That might improve the quality of Nasdaq-listed companies and help businesses attract coverage by analysts.

Smaller companies that cannot reach that $25 million threshold and still want a U.S. listing could still turn to the NYSE American exchange. Chinese companies that have a hard time coming up with the $25 million may also look to restructure their ownership in a way that reduces its ties to the “restricted area” of mainland China, Hong Kong and Macau, and look to build links to Singapore, a key regional financial hub.

Finally, Bernstein says some companies may seek for a SPAC merger, or a process known as “de-SPAC,” instead of an IPO. The float requirements in that case can be met just by registering stock owned by shareholders that aren’t affiliated with management and controlling shareholders, he noted.
ForbesChina Auto Glass Maker Fuyao Opens New U.S. Plant, Eyes Smart VehiclesBy Russell FlanneryForbesApple Supplier’s Chairman Leads New List Of China’s Top BusinesswomenBy Russell Flannery

Editorial StandardsReprints & Permissions