SEC asks Chinese companies for new requirements for US IPOs

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By Echo Wang

Aug 23 (Reuters) – The United States Securities and Exchange Commission (SEC) began issuing new transparency requirements for Chinese companies seeking to go public in New York, as part of a plan to increase awareness of the investors about the risks involved, according to a document reviewed by Reuters and people familiar with the matter.

Some Chinese companies have begun to receive detailed information from the SEC on greater transparency in the use of variable interest entities (VIEs) for IPOs, the implications for investors, and the risk that Chinese authorities will interfere with the operations of the company. company.

Last month, SEC Chairman Gary Gensler called for a “pause” in US IPOs of Chinese companies and more transparency.

The IPOs of Chinese companies in the United States came to a standstill after the SEC’s call. In the first seven months of 2020, the IPO had reached a record $ 12.8 billion.

“Please describe how this type of corporate structure can affect investors and the value of their investment, including how and why contractual arrangements may be less effective than direct ownership, and that the company may incur substantial costs for enforce the terms of the agreements, “according to a letter from the SEC seen by Reuters.

Chinese VIEs are incorporated into tax havens such as the Cayman Islands. Gensler has said that there are too many questions about how money flows through these entities.

“Refrain from using terms such as ‘we’ or ‘our’ when describing the activities or functions of a VIE,” the letter said.

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An SEC spokesperson did not immediately respond to a request for comment.

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