China's Top Tech Firms Heed the Call to Bring Listings Home

(Bloomberg) -- China's biggest overseas-traded technology companies from search giant Baidu Inc. to Sogou Inc. are investigating ways to float shares on the country's exchanges, as Beijing encourages its largest corporations to bring their listings home.

Chinese enterprises have long pursued the prestige and capital associated with marquee overseas debuts. But technology businesses from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. have in recent years outstripped their old-economy peers to become the nation's largest, and virtually none are traded domestically. Market regulators are now pushing the industry to package Chinese Depositary Receipts or CDRs -- similar to ADRs -- for local investors, Caixin reported. 

Smartphone maker Xiaomi Corp. is said to be considering a mainland listing as part of a much-anticipated 2018 coming-out party. Baidu Chief Executive Officer Robin Li, Sogou's Wang Xiaochuan and Yao Jinbo, founder of the Craigslist-style service 58.com Inc., have separately declared their ambitions of listing their companies on Chinese bourses when regulations permit the creation of CDRs. On Monday, prominent entrepreneur and Netease Inc. CEO William Ding joined the chorus.

“After 2005, when we listed in America, we immediately communicated with the China Securities Regulatory Commission,” said Li, who was attending the annual, tightly-scripted Two Sessions meeting of political bodies in Beijing. “We've always had a dream to be listed back in China.”

Enticing mega-corporations to list locally will help burnish the reputation of China's twin bourses in Shanghai and Shenzhen, notorious for spotty regulation, volatility and periodic government intervention. It could also offer a major valuation boost thanks to the appetites of individual Chinese as well as local funds, who have few tech alternatives and face investment restrictions abroad. Decamping from America and listing in China helped 360 Security Technology reap a massive increase in market capitalization that greatly enriched CEO Zhou Hongyi.

Read more: Tech Firms Question Hong Kong's Plan to Lure Next Alibaba

The local courtship however coincides with an effort by neighboring Hong Kong to rework its regulations to enhance its attraction to the tech sector. And it's unclear how advanced mainland Chinese regulators are in creating a framework for CDRs, or what they envision specifically.

Regardless, the envisioned bounty of tech IPOs may brighten Chinese market sentiment and give existing stocks a shot in the arm, CICC analysts led by Wang Hanfeng wrote in a research note.

“A large number of top–tier Chinese firms listed in overseas bourses instead of the A-share market. This is not an outcome welcomed by Chinese regulators,” they wrote. The “listing of quality leaders meeting the four criteria will make high-quality growth stocks less scarce and prompt growth names to diverge in the long term.”

JD.com Inc. CEO Richard Liu has said that any listing of his logistics business may encompass mainland China. Sogou, which only recently listed in the U.S., operates mainly in China and could thus benefit from a local listing, CEO Wang Xiaochuan said. “We strongly hope to return to the A-share market, and we hope the policies will change,” he said.

Yao, CEO of $11 billion web classifieds company 58.com, echoed that sentiment.

“Right now we're all discussing how the A-share market can support the internet industry,” Yao told reporters in Beijing. “We too hope to have the chance to ‘return to the market.”

To contact Bloomberg News staff for this story: David Ramli in Beijing at dramli1@bloomberg.net, Miao Han in Beijing at mhan22@bloomberg.net, Amy Li in Shanghai at yli677@bloomberg.net, Jing Yang de Morel in Shanghai at jyang543@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Reed Stevenson

©2018 Bloomberg L.P.

With assistance from David Ramli, Miao Han, Amy Li, Jing Yang de Morel