Chinese firms face renewed scrutiny from Wall Street and at home

The company, which does logistics for cross-border e-commerce, recently supersized its original fundraising target, quadrupling it to $33 million from an original $7.5 million.

That's due to a new NASDAQ requirement that all new Chinese listings raise at least $20 million.

But what also stands out about this listing is that the valuation World Road is seeking seems quite inflated, giving it a price-to-sales ratio of about 3.3. Now, to put that in perspective, leading Chinese logistics company SF Holding said, trades at a ratio of just 0.39, about one-tenth of that.

And then U.S. giant UPS, which is a little better, they trade at a ratio of 0.93, which, again, is just less than a third of what this company is seeking.

And I don't think this company really probably is in the same league as either of these guys.

So, Rene, let's start with a review of the bigger picture for listeners and explain why U.S. listings by Chinese companies have almost disappeared this year.

Well, primarily for two reasons.

One, on the side of Chinese regulators, which over the last six years, really, have grown significantly.

very cautious in terms of allowing Chinese companies to list first of all outside China.

And secondly, in the U.S. in particular, because of geopolitics, but also because of perceived or real national security implications on the Chinese side in particular.

On the U.S. side, if you go back to three years, every year there's been a number of small Chinese companies doing IPOs on NASDAQ.

I don't think there were any on NYSE, which I think has been much more conservative.

Most of these IPOs were pretty small.

They were small companies.

They were small capital raises.

They were using, you know, 40 or 10 T underwriters.

And they ended up, we ended up with quite a number of them basically turning into pump and dump schemes.

with investors losing a lot of money.

You know, it took quite a while for the regulators, including the SEC and NASDAQ, and on the side, the NYSE, to finally get serious about it and come up with new rules and requirements that you've mentioned in your introduction.

That in and by itself then has created a substantial reduction in the number of companies applying.

Okay.

Well, how about let's return to this case with this company, World Road.

They did note in their prospectus that they had yet to receive the necessary green light from China's securities regulator for this listing issue.

Given all the efforts that you just mentioned to stamp out a lot of these suspicious Chinese IPOs on Wall Street, what do you give World Road chances for completing this listing?

Forget about it.