Nasdaq will put a minimum $25mn value on the size of IPOs, making it harder for some Chinese firms to pursue a listing. A delisting notice has been filed against Luckin Coffee.
Nasdaq is planning to tighten its rules on IPO eligibility, setting a minimum USD 25 million limit on the size of IPOs, or alternatively, at least a quarter of post-listing market cap, Reuters reports.
The move will make it harder for Chinese companies to list on the Nasdaq, amid concerns that some IPO hopefuls from China lack accounting transparency and have close ties to powerful insiders.
This is the first time Nasdaq has put a minimum value on the size of IPOs. The change would have prevented several Chinese companies currently listed on the Nasdaq from going public. Out of 155 Chinese companies listed on Nasdaq since 2000, 40 grossed IPO proceeds below USD 25 million.
Small Chinese firms tend to pursue Nasdaq IPOs to allow founders and backers to cash out in US dollars, and to use the status to obtain financing from Chinese lenders and subsidies from Chinese authorities.
The proposed new rules will also require auditing firms to comply with global standards when auditing the accounts of Chinese IPO hopefuls.
According to the Nasdaq’s regulatory filing with the SEC (Securities and Exchange Commission), seen by the FT, Nasdaq noted that some companies “lacked familiarity with the requirements to be a Nasdaq-listed public company in the US or [were] otherwise unprepared for the rigours of operating as a public company”.
Nasdaq’s move follows an accounting scandal at Luckin Coffee, one of the biggest Chinese listing in the US in recent years. In April, the company admitted to misconduct and the fabrication of CNY 2.2 billion (USD 310 million) in sales transactions by its chief operating officer and his staff.
Last Friday (15 May), Nasdaq filed a delisting notice against Luckin Coffee, citing public interest concerns and the company’s past failure to publicly disclose material information.
Luckin shares resumed trading on Wednesday (20 May) following a six-week suspension. The company will continue to remain listed pending the outcome of a Nasdaq Hearings Panel, which Luckin plans to formally request.
Luckin Coffee chairman Charles Lu Zhengyao has meanwhile apologised in a WeChat statement for the accounting fraud, saying he is “deeply disappointed” with the delisting decision.
“I again apologise to all the investors, staff and clients of Luckin for the terrible impact of the incident.”