Nasdaq cracks down on IPOs of small Chinese companies

Some 19 Chinese companies went public on the Nasdaq in 2018, up from 8 in 2017, based on submissions by investment banks underwriting them to Dealogic.

IPOS HELD UP

Following the listing rule changes, small Chinese IPOs have experienced longer waiting times and scrutiny from Nasdaq before they are allowed to proceed with their IPOs, according to corporate and investment banking sources.

For example, Xuezhu Wang, CEO of Happiness Biotech Group Ltd , a Chinese company that manufactures and sells nutraceuticals, told Reuters he promised Nasdaq to secure at least 30% of the IPO proceeds from U.S. investors, in order to be allowed to list.

As most of the small Chinese companies pursuing U.S. IPOs have no U.S. business presence or brand recognition, hiring U.S. citizens as board members is now being adopted as a tactic to get listings approved, Chinese executives and investment bankers say.

China Xiangtai Food Co, a pork processing company based in Chongqing City in southwest China, had to add two U.S. citizens to its board of directors to be allowed by Nasdaq to complete its IPO in August 2019, according to two people familiar with the matter.

Xiangtai did not respond to a request for comments.

The New York Stock Exchange, the other major U.S. stock exchange, operated by Intercontinental Exchange Inc, is looking closely at Chinese listings, according to a source familiar with the matter. However, it has yet to introduce rule changes similar to Nasdaq.

"The New York Stock Exchange has a longstanding commitment to good governance, rigorously adhering to both the letter and spirit of our listing standards," a New York Stock Exchange spokesman said.

(Reporting by Echo Wang and Joshua Franklin in New York Additional reporting by Julie Zhu in Hong Kong and Michelle Price and Alexandra Alper in Washington, D.C Editing by Greg Roumeliotis and Nick Zieminski)