Chinese technology companies account for a large portion of global unicorns, and many are looking to list far from home.
A growing herd of Chinese unicorns
Globally, 267 companies have reached unicorn status thus far, according to TechCrunch.* Of those, 90 are Chinese companies, including 81 in the technology sector. Historically, these Chinese tech giants have sought IPOs outside of China. The big three—nicknamed “BAT” for Baidu, Alibaba, and Tencent—have all listed elsewhere, with two in the US and the last in Hong Kong.
Due to Hong Kong’s close culture and proximity to mainland China, it has always been the preferred destination for big Chinese IPOs. It hosted the biggest Chinese unicorn IPO so far this year, from insurance company ZhongAn Online P&C Insurance for $1.8bn in September. However, tech companies have generally looked further afield.
Tech unicorns eye greener pastures
Even with China setting up its own exchange that focuses on tech companies in Shenzhen, the majority of companies listing domestically remain small. This YTD, the biggest Chinese tech company that priced within China was only $300m, from Electric Connector Technology via the Shenzhen Stock Exchange in July. In comparison, the Hong Kong Stock Exchange hosted the biggest Chinese tech IPO so far this year, with China Literature’s $1.2bn listing. The second largest, Qudian at $1.0bn, went to the New York Stock Exchange.
US exchanges are prepared
The US has been the favored destination for Chinese tech companies. They have raised a total of $97.3bn through global exchanges since their first IPO in 1996; the US was on top with $43.1bn, followed by China with $41.7bn then Hong Kong with $12.0bn. Listing location may have prompted these issuers to seek global advice, and only one of the top 10 bookrunners by volume since 2013 is a Chinese bank.
One big advantage for US exchanges over others is that they allow dual-structure listing, which is heavily used by tech companies. These listings allow for founder control even when shares are diluted. This YTD, 5 Chinese tech IPOs have listed on US stock exchanges with a minimum of $100m—and all 5 were dual-structure listings. Of those, 2 are unicorns—Qudian and Sogou ($585m). US markets are open, and ready to host Chinese tech unicorns as they seek IPOs abroad.
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Data source: Dealogic, as of November 21, 2017, and *TechCrunch (Unicorn Leaderboard), as of September 25, 2017