Banks reject China’s plan to curb overseas IPOs

Global banks are raising concerns with Chinese authorities over a plan to tighten rules on foreign share listings, saying the draft rules are vague and will extend Beijing’s regulatory reach outside the country’s borders.

The proposals will also increase costs and hamper negotiations, Hong Kong’s leading financial firm lobby group said in a letter to the Securities Regulatory Commission. China (CSRC) on Sunday, according to people familiar with the matter. The letter asked for more clarity on documentation requirements and what constitutes a violation, said the people, who requested anonymity.

A representative of the Asian Securities Industry and Financial Markets Association (ASIFMA) declined to comment. The CSRC also declined to comment.

Reacting against China is a risk for the banks of Wall Street and its European rivals, which are seeking to build huge investment banking and asset management operations in the world’s second-largest economy. Hundreds of Chinese companies, including giants such as Tencent Holdings Ltd. and Alibaba Group Holding Ltd., have been listed abroad over the past two decades. Investment banks have made more than $6 billion from such transactions since 2014.

In December, China revealed the plan to reformulate the regulations for the sale of shares abroad. The Beijing government has become increasingly concerned about leaking sensitive data abroad, and has empowered a cybersecurity regulator to control who can list abroad. The move is part of a broader crackdown on big tech companies that included huge antitrust fines and the halting of billionaire Jack Ma’s Ant Group Co.’s $35 billion initial public offering.

Banks say the latest draft of China’s rules, which were released for public comment, will increase operating costs and introduce complex regulations for companies operating in Hong Kong or elsewhere outside mainland China, people familiar with the matter said. .

The lack of implementation details and the use of vague words in the document cause concern in the investment banking community, the people said. One rule prohibits listing abroad if the company, or its main shareholder, has committed the criminal offense of “disturbing the order of the socialist market economy”.

Global banks fear their licenses could be easily revoked and bankers also face individual risks, the people said. In its letter, ASIFMA asked the CSRC to help banks better understand national security concerns.