Some Chinese firms postpone plans to issue Chinese depository receipts

An investor in Shanghai Photo: Reuters

Some offshore-listed Chinese companies including Alibaba, JD.com and Baidu that had reportedly planned to list shares through Chinese depositary receipts (CDR) in the mainland market have successively postponed their applications for CDR, following Chinese phone maker Xiaomi's delay in CDR issuance on the mainland.

CDR is a financial instrument issued by a custodian bank that allows domestic investors to buy securities of overseas-listed Chinese companies. Currently, Alibaba, JD.com and Baidu are listed in the United States, while Xiaomi just made its Hong Kong IPO debut on Monday.

On June 19, Xiaomi abruptly postponed its original plan for CDR offering in the mainland market, saying in a statement that it has decided to complete the IPO in Hong Kong first and then "pick an opportunity" to issue CDR.

Caixin, a leading business news provider in China, cited sources close to the matter as saying that the delay was caused by the divergence between Xiaomi and the China Securities Regulatory Commission, the country's securities watchdog, on CDR pricing, casting a shadow on the Commission's efforts in attracting valuable offshore-listed Chinese companies to return to the Chinese mainland.

In June, the securities regulator rolled out the much-anticipated trial rules for the issuance and transaction of CDR, paving the way for its initiative that will facilitate overseas-listed Chinese companies and promising unicorn startups to raise funds in the mainland stock market. Not all companies are eligible to list shares via CDR, as the CSRC has made a list of pilot companies which are deemed to meet the strict criteria for CDR listing. 

Over the year, the Chinese government has expressed its willingness for the return of well-recognized, overseas-listed Chinese companies through CDR offering, amid efforts to promote the internationalization of the domestic capital market and offer more fundraising channels for good Chinese companies and startups.

However, Xiaomi's delay in CDR offering casts a shadow to the Chinese government's financial attempt.

Financial experts said that red-chip companies are superior to Xiaomi as the first Chinese company to issue CDR due to the former's stable overseas stock prices.

A source from a fund management company told Caixin that Internet companies would not make compromises on CDR pricing, while the regulator did not follow the market-oriented pricing principle, increasing the mistrust between the two sides.

Alibaba has reportedly prepared all the materials for CDR listing but with no signs of submitting the application, which an insider said is caused by Alibaba's disagreement with the regulator on pricing and issuance scale, according to Caixin.

As for JD.com, its consideration lies in its unsustainable profitability, which creates more risks than benefits via CDR listing at the time being, said a source from the retail giant, according to Caixin.

On the other hand, some analysts believe that the slump in China's stock markets could be another reason behind these companies' suspension of CDR offering.

On June 28, Chinese shares plummeted, with the benchmark Shanghai Composite Index falling below 2,800 points.

Under the circumstances, it was not the best time for Xiaomi to issue CDR when the stock market rout took place, the Securities Daily quoted experts as saying.

On June 29 at a regular press conference, Chang Depeng, a CSRC spokesperson, made no comments on the connection between the share slump and the delay of CDR listing, saying that the new developments of CDR offering will be announced publically after the State Council, the country's cabinet, releases the related documents.
 


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