Total fundraising from Chinese IPOs will be around 100 billion yuan lower in 2018 than in 2017, leaving more cash available to be absorbed by CDR funds and dampening a potential liquidity drain. Photo: iStock

A number of Chinese tech giants listed overseas, including Alibaba Group Holding Ltd and Baidu Inc, are planning to offer shares on the domestic market through the China depositary receipts (CDRs) pilot program as early as the end of this month, according to the website Caixin.

“Smartphone maker Xiaomi Inc also said Thursday that at least half the shares in its planned initial public offering (IPO) will be sold through CDRs. Modeled after US-listed American depositary receipts for foreign equities, the CDR program will allow Chinese companies traded in New York, Hong Kong or other overseas markets to gain a domestic listing,” the website reported.

“When the initiative was first announced back in March, we were concerned that a rush of interest in CDRs might suck up a big chunk of liquidity from China’s capital markets (See Caixin View March 30). There certainly seems to be plenty of enthusiasm among domestic investors to get a piece of the action. Last week, six large Chinese money managers rushed to set up equity funds aiming to raise as much as 300 billion yuan ($46.8 billion) — 50 billion yuan each — to mainly invest in CDRs as well as the IPOs of new tech companies.”

The website added, “The securities regulator (CSRC) seemed a little worried as well — last weekend it told fund managers to report the pace of their fundraising twice a day and to limit the total amount of investment from individuals to 20 billion yuan for each fund.

“Our concern has eased a little however, and we now believe that the impact on market liquidity will be relatively contained. This is because the flow of regular IPOs has been slow this year: 51.9 billion yuan was raised via IPOs on domestic bourses from January to May this year, down from 108.9 billion yuan over the same period last year. This is likely the result of intentionally lower IPO approval rates by regulators as they attempt to increase the quality of new offerings. If this pace is maintained for the rest of the year, total fundraising from IPOs will be around 100 billion yuan lower in 2018 than in 2017, leaving more cash available to be absorbed by CDR funds and dampening a potential liquidity drain.”

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