The U.S.-listed truck app operator reportedly scrapped its plan for a second listing in Hong Kong due to recent improvements in the U.S. regulatory environment

Key Takeaways:

  • Trucking app operator Full Truck Alliance has halted its plan to make a second listing in Hong Kong, according to a media report
  • The decision reflects improving sentiment towards U.S.-listed Chinese companies, and could auger a resumption of major new IPOs by the group in New York next year 

By Doug Young

We’ll spend our final trading day of 2022 looking at a report that trucking app operator Full Truck Alliance Co. Ltd. (YMM.US) has scrapped its plan for a Hong Kong listing. If the news is correct, which seems likely, the move would represent a highly symbolic positive end to what has been a year filled with bumps and bruises for U.S.-listed Chinese companies.

Most significantly, the decision could augur well for this group of battered stocks in the New Year. Investors already seem to be sensing that U.S.-listed Chinese companies have turned the corner after taking a beating for the last year-and-a-half due to assaults from regulators in both Washington and Beijing. That’s reflected in iShares MSCI China ETF (MCHI.US), which includes many of the stock we follow, and is up 36% from a low in late October.

The recent signals that the worst may be over could also have some much-bigger implications for this group, led by a potential flood of new listings on Wall Street driven by pent-up demand from more than a year with no major new IPOs.

We’ll look at the broader implications for 2023 shortly. But first we’ll begin with the latest news that Full Truck Alliance decided earlier this month to scrap its plans for a Hong Kong IPO that could have come as early as January, according to The Information. The report added that discount e-commerce site Pinduoduo (PDD.US) also put discussions for a similar potential second listing in Hong Kong on hold.

The companies made their decisions, opting to stick with solo listings in the U.S. instead of adding second listings in Hong Kong, in response to recent developments in the regulatory climate. The pair were part of a much larger group that had been seeking Hong Kong listings as insurance in case the U.S. securities regulator tried to forcibly de-list them from New York.

The U.S. regulator had been threatening to take such action unless it could gain better access to the companies’ China-based accounting records – something Beijing had refused to allow in the past. The two countries ended their impasse in August with the signing of an information-sharing agreement, and the U.S. gave a solid endorsement to the deal earlier this month after getting all the information it wanted in a round of trial inspections.

One of the first positive signals following the latest developments came from online insurance broker Fanhua (FANH.US), which last week withdrew its plan to privatize from New York, citing the improving regulatory environment. At the time, we predicted more-similarly positive signals were likely to follow, and the latest decisions by Full Truck Alliance and Pinduoduo appear to show that is indeed happening.

Full Truck Alliance’s American depositary shares (ADSs) rose 4.4% on Thursday, while Pinduoduo’s were up by a more modest 1.2%. Still, at their latest close of $8.16, Full Truck Alliance’s shares are less than half the $19 they sold for in their IPO in June last year.

Rocky road

Full Truck Alliance reflects the difficulties faced by U.S.-listed Chinese companies over the last year-and-a-half. Shortly after its IPO, the company, which matches truck drivers with people who need goods shipped, was informed by China’s internet regulator that it failed to get a required data security review before its listing. That kind of regulatory slap has been common across the Chinese corporate landscape lately, aimed at everything from anti-competitive behavior to data security and gaming addiction, just to name a few of the targeted areas.

Full Truck Alliance was banned from registering new users for about a year as punishment, and the ban was finally lifted in June with the completion of the data security review. More broadly, similar signals have emerged in recent months that the regulatory environment is shifting from crackdowns towards assisting these private companies as Beijing turns its focus toward propping up China’s sputtering economy.

The improving situation was evident in Full Truck Alliance’s latest quarterly results, which covered the period after the ban on new user registrations was lifted. The company’s third-quarter revenue rose 46% year-on-year to 1.8 billion yuan ($258 million), propelling it into the black with a 395.5 million yuan profit for the year, reversing a year-ago loss.

The latest signals from Fanhua, and now Full Truck Alliance and Pinduoduo, are the clearest indication yet that Chinese companies are no longer too worried about the de-listing threat. Such sentiment is likely to show up in several ways next year, most notably in a resumption of major IPOs by Chinese firms that could begin as soon as the first quarter.

A number of IPOs were pulled after the regulatory crackdowns reached a peak in June and July last year, including plans to raise $100 million or more by shared bike operator Hello Inc., medical data services provider LinkDoc and Full Truck Alliance rival ForU. Dating app Soulgate also scrapped its New York listing plan and recently filed for a Hong Kong IPO. With the improving environment, it’s quite possible we could see Hello Inc., LinkDoc and ForU all revive their U.S. listing plans, and even Soulgate could drop its Hong Kong ambitions and return to New York.

The improving environment could also halt several pending privatization bids by cosmetic surgery specialist So-Young (SY.US) and data center operator VNET (VNET.US), similar to what happened with Fanhua. Last but not least, more U.S.-listed Chinese companies could abandon plans for second listings in Hong Kong. And some that have already listed in Hong Kong could decide to scrap those second listings to save some of the associated costs.

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