The humiliating implosion of Luckin Coffee was supposed to serve as a cautionary tale about the dangers of US-listed Chinese companies. Once the hottest of start-ups, the coffee chain revealed in April that its employees had fabricated many of the sales reported for 2019. Luckin shares crashed 75 per cent in one day. Prospects for mainland companies hoping to raise capital in the US seemed bleak.
Yet if there is a crisis of confidence in China Inc it is not showing up in stock markets. Last week, Kingsoft Cloud, one of China’s top cloud services providers, successfully raised more than half a billion dollars in its US IPO. The stock popped more than 40 per cent in its first day of trading on Nasdaq. That was even after the company increased the number of shares it sold at the last minute to meet demand.
So far this year, nine Chinese companies have managed to go public in the US and have raised a combined $918m, according to data from Refinitiv. That puts the pace slightly ahead of this time last year, when 11 companies raised $640m.
Kingsoft Cloud benefits from big name shareholders such as Xiaomi, the smartphone giant. Yet it lost $160m last year on revenue of $568m and faces stiff competition from rival cloud services provided by Alibaba and Tencent.
Still, the company’s successful market debut in the midst of tough conditions is likely to encourage other Chinese companies to move forward with their own US listing plans. One, a small consulting firm called Global Internet of People, is looking to raise as much as $21m on the Nasdaq.
Investors should not get too carried away. Chinese companies have raised more than $55bn in the US stock market since 2000 — but while the biggest ones such as Alibaba and JD.com have done well, smaller ones have a less than stellar record. The average return on Chinese companies that raised $200m or less in their IPOs this year is negative 30 per cent, compared with the 12 per cent decline for the S&P 500 so far this year.
But listing in Asia at a higher valuation is not a given either. Mainland regulators are also cracking down on corporate malfeasance back home. Chinese entrepreneurs may have no choice but to brave the US market and take the risk that financial scandals among compatriots deal a blow to their valuations.
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