EXCLUSIVE -SEC sets new requirements for IPOs of Chinese companies in the United States – 23/08/2021

By Echo Wang

(Reuters) – The Securities and Exchange Commission (SEC) has begun issuing new disclosure requirements for Chinese companies wishing to list in New York. With matter.

Some Chinese companies have already begun to receive extensive guidelines from the SEC, which regulates the US capital market, to further expose the use of seaborne vehicles, known as VIEs, to IPOs; Implications for investors and the risk of Chinese officials interfering in the company’s operations.

Last month, SEC President Gary Jensler called for a “gap” in US initial public offerings (IPOs) of Chinese companies and sought greater transparency on these issues. Chinese lists were suspended in the United States after the SEC operation. In the first seven months of 2020, those lists reached $ 12.8 billion as Chinese companies capitalized on the emerging U.S. stock market.

“Explain how this type of organizational structure affects investors and the value of their investments, why contract arrangements are less effective than direct ownership, and the company can incur significant costs to implement compliances.” An SEC letter seen by Reuters.

According to the letter, the SEC asked for a statement from Chinese companies stating that “investors cannot directly hold shares in a Chinese operating company.” Many Chinese VIEs are embedded in tax havens such as the Cayman Islands. Jensler said there are many questions about how money flows through these companies.

“Avoid using words like ‘we’ or ‘ours’ when describing the functions or functions of VIE,” the letter said.

An SEC spokesman did not immediately respond to a request for comment.

The SEC has also issued disclosure requirements regarding the risk of Chinese regulators interfering in the company’s regulatory policies. Last month, just days after DD Global’s IPO, Chinese regulators banned the transport company for each application to register a new application. The move was followed by repression against technology and educational institutions.

The SEC also asked for more details on cases where some companies did not comply with the US Foreign Accountability Liability Act for regulatory accounting disclosures. Until now, China has banned the sharing of the work of auditors with the US Public Accounts Oversight Board. Last month, the SEC fired a failed leader in an attempt to gain independent audit of US-listed Chinese companies.

The SEC’s move marks the latest blow by US regulators against corporate China, which for years has frustrated Wall Street with its reluctance to adhere to US audit standards and improve the management of companies held close to the founders.

The SEC is under pressure to finalize rules to remove the list of Chinese companies that do not meet US audit requirements.