U.S. IPO MARKET A DANGER ZONE FOR CHINESE FIRMS, ANALYSTS WARN

China's stepped-up scrutiny of overseas listings by its companies and a clampdown on ride-hailing giant Didi Global Inc. soon after its debut in New York have darkened the outlook for listings in the United States, bankers and investors said, Scott Murdoch, Kane Wu and Echo Wang reported for Reuters.

Earlier in the week, Beijing said it would strengthen supervision of all Chinese firms listed offshore and tighten rules for cross-border data flows, a sweeping regulatory shift that is also set to weigh on the long-term valuations of the IPO-bound companies, they said.

Bankers and investors expect the pace of activity to slow in the near term as investors grapple with Beijing's decision to tighten supervision of firms listed offshore, coming just days after regulators stunned investors by launching a cybersecurity investigation into Didi.

"It suffices to say those Chinese companies already planning to list in the US will have to pause, or even abandon the plans altogether, in the face of mounting uncertainties and confusions," said Fred Hu, chairman of Primavera Capital Group.

"The US market is off-limits, at least for now," said Hu, whose private equity firm's portfolio includes a number of tech companies that have gone public overseas. "The stakes are extraordinarily high, for both the tech companies and for China as a country."

US capital markets have been a lucrative source of funding for Chinese firms in the past decade, especially for technology companies looking to benchmark their valuations against listed peers there and tap an abundant liquidity pool. A record $12.5 billion has been raised so far in 2021 in 34 offerings from listings of Chinese firms in the US, Refinitiv data show, well up from the $1.9 billion worth of new listings in 14 deals in the year-ago period.

Analysts say China's moves to look more closely at firms venturing overseas add a new layer of uncertainty for firms already struggling to navigate escalating tensions between Beijing and Washington over a broad range of issues.

"The message is that for a successful overseas listing, Chinese regulators must be involved, as well as international cooperation with overseas regulatory bodies," said Louis Lau, California-based Brandes Investment Partners' director of investments.

"Overseas-listed Chinese companies may have had the mistaken impression that it can ignore Chinese regulators just because they are not listed in China," Lau, whose company holds Chinese stocks, told Reuters.

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