SEC to tighten disclosure norms for Chinese companies seeking US listing
The development comes in the aftermath of the regulatory crackdown by the Chinese administration on tech companies over overseas share issuance
August 02, 2021 / 09:35 AM IST
The US Securities and Exchange Commission (SEC) is planning to amp up disclosure requirements for Chinese companies seeking to list on the US stock exchanges.
The development comes in the aftermath of the regulatory crackdown by the Chinese administration on tech companies over overseas share issuance.
"In light of the recent developments in China and the overall risks with the China-based (variable interest entities) structure, I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective,” SEC Chairman Gary Gensler said in a statement.
A variable interest entity refers to a legal business structure in which an investor has a controlling interest despite not having a majority of voting rights. The structure allows companies to raise funds in foreign markets by establishing offshore shell companies in those countries.
In the past, this has helped many companies—from Alibaba to JD.com—to go public in the US, bypassing Beijing as the country doesn’t allow direct foreign ownership in most cases.
Gensler said he was worried that "average investors may not realise that they hold stock in a shell company rather than a China-based operating company".
The SEC will now ask such Chinese companies to distinguish the shell company’s management services from the operating company while stating any risk from future actions from the Chinese government.