By Li Hongmei
The U.S. ban on Chinese affiliates of the four biggest accounting firms stands to undermine a pickup in initial share sales by Chinese companies in New York.
While the auditors said they'll appeal the six-month ban imposed by a U.S. judge, the ruling will probably push Chinese companies to opt for a listing in Hong Kong instead of New York, said Bruno del Ama, chief executive officer of Global X Funds.
Chinese companies had begun lining up to sell in New York this year after eight initial public offerings were carried out in 2013, up from three the year before.
Beijing Jingdong Trading Co. and Zhaopin Ltd. wanted to go public in the world's biggest stock market, people familiar with the matter said this month. Alibaba Group Holding Ltd., China's largest e-commerce company, said in November that it's deciding whether to sell shares in the U.S. or Hong Kong.
The Bloomberg China-US Index of the most-traded Chinese stocks in the U.S. dropped 4.3 percent to 98.03 last week, the biggest slump in three months, after the U.S. Securities & Exchange Commission barred the four largest accounting firms from conducting audits of New York-listed companies.
The decision to ban the affiliates of the largest accounting firms for six months "ignored" China's efforts and progress made on cross-border rules cooperation, the nation's securities regulator said on Jan. 24 on its microblog.
Deloitte Touche Tohmatsu CPA Ltd., PricewaterhouseCoopers Zhong Tian CPAs Ltd., Ernst & Young Hua Ming LLP and KPMG Huazhen have 21 days to file a petition for review with the SEC before the Jan. 22 ruling would become final.
The SEC ruling could also mean lower valuations for the IPOs, said Bao Fan, chief executive officer of technology-focused boutique investment bank China Renaissance.
"The one thing investors dislike most is uncertainty and that uncertainty will be priced in," Bao said in an interview. "It is the companies, the issuers, that are going to pay the price."
China Renaissance advised Qunar Cayman Islands Ltd. (QUNR) and Sungy Mobile Ltd. on their U.S. initial share sales last year.
IPOs by Chinese companies started gathering pace in mid-2013 after a two-year lull sparked by accounting frauds at Sino-Forest Corp., a Chinese plantation company listed in Canada that was accused by short-selling firm Muddy Waters LLC in 2011 of overstating its timber holdings.
Muddy Waters said NQ Mobile Inc., a Chinese mobile-security service provider, inflated sales in a October report. Beijing-based NQ Mobile has denied the allegations and set up an independent committee to review the report.
Optimism about surging e-commerce in the world's most populous nation helped reignite investor interest in Chinese IPOs. Even after last week's decline, the Chinese companies that went public in the U.S. last year have almost doubled from their offer prices on average, data compiled by Bloomberg show.
Alibaba, based in Hangzhou, hasn't decided when and where to sell shares, an external spokesman for the company said by phone Nov. 20 after a Nikkei newspaper report cited the company's founder Jack Ma as saying he preferred having an initial public offering in Hong Kong as early as this year.
