Ruling Could See IPOs Shift to Hong Kong from New York

A recently-imposed US ban on Chinese affiliates of the ‘Big Four’ accounting firms stands to undermine a pickup in initial public offerings (IPOs) by Chinese companies in New York.

Last week, in a harshly-worded 112-page ruling, Cameron Elliot, a Securities and Exchange Commission (SEC) administrative law judge, censured the Chinese units of KPMG, Deloitte & Touche, PricewaterhouseCoopers (PwC) and Ernst and Young (EY) and said that they should be suspended from practicing in the US for a period of six months, an escalation of the long-running dispute between regulators in the US and China over access to audits.

The ruling also censured a fifth firm, Dahua, previously a member of the Binder Dijker Otte & Co (BDO) international network, but did not impose a six-month suspension.

While auditors said they intend to appeal against the six-month ban, the ruling is likely to persuade many Chinese companies to opt for a listing in Hong Kong rather than New York, said Bruno del Ama, chief executive officer of Global X Funds.

A growing number of Chinese companies were planning to sell in New York this year after eight IPOs were conducted in 2013, up from three a year earlier. Reports suggest that Beijing Jingdong Trading and employment website Zhaopin were among the contenders, while Alibaba Group Holdings, China’s largest electronic commerce (e-commerce) company, has been mulling
whether to sell shares in the US or Hong Kong
.

“Some of the sexiness of IPOs in the U.S. may be going away because of some of the perception issues,” del Alma said in an interview with news service Bloomberg.

“When you think about it, five years ago technology companies were looking at an IPO in Nasdaq because that’s the global technology exchange. Then all of sudden these accounting issues started to come up.”

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